BUSINESS ORGANIZATIONS IN GENERAL or restrictions may be imposed by special charter, by-

law, or statutory provisions, the same general principles

1. Yao Ka Sin Trading vs Court of Appeals of law which govern the relation of agency for a natural
209 SCRA 763 – Business Organization – Corporation person govern the officer or agent of a corporation, of
Law – Liability of Officers – Apparent Authority whatever status or rank, in respect to his power to act
for the corporation; and agents when once appointed,
FACTS: In 1973, Constancio Maglana, president of Prime or members acting in their stead, are subject to the
White Cement Corporation, sent an offer letter to Yao same rules, liabilities and incapacities as are agents of
Ka Sin Trading. The offer states that Prime White is individuals and private persons." 51 Moreover, " . . . a
willing to sell 45,000 bags of cement at P24.30 per bag. corporate officer or agent may represent and bind the
The offer letter was received by Yao Ka Sin’s manager, corporation in transactions with third persons to the
Henry Yao. Yao accepted the letter and pursuant to the extent that authority to do so has been conferred upon
letter, he sent a check in the amount of P243,000.00 him, and this includes powers which have been
equivalent to the value of 10,000 bags of cement. intentionally conferred, and also such powers as, in the
However, the Board of Directors of Prime White usual course of the particular business, are incidental
rejected the offer letter sent by Maglana but it to, or may be implied from, the powers intentionally
considered Yao’s acceptance letter as a new contract conferred, powers added by custom and usage, as
offer hence the Board sent a letter to Yao telling him usually pertaining to the particular officer or agent, and
that Prime White is instead willing to sell only 10,000 such apparent powers as the corporation has caused
bags to Yao Ka Sin and that he has ten days to reply; persons dealing with the officer or agent to believe that
that if no reply is made by Yao then they will consider it it has conferred.
as an acceptance and that thereafter Prime White shall
deposit the P243k check in its account and then deliver While there can be no question that Mr. Maglana was
the cements to Yao Ka Sin. Henry Yao never replied. an officer — the President and Chairman — of private
respondent corporation at the time he signed Exhibit
Later, Yao Ka Sin sued Prime White to compel the latter "A", the above provisions of said private respondent's
to comply with what Yao Ka Sin considered as the true By-Laws do not in any way confer upon the President
contract, i.e., 45,000 bags at P24.30 per bag. Prime the authority to enter into contracts for the corporation
White in its defense averred that although Maglana is independently, of the Board of Directors. That power is
empowered to sign contracts in behalf of Prime White, exclusively lodged in the latter. Nevertheless, to
such contracts are still subject to approval by Prime expedite or facilitate the execution of the contract, only
1 White’s Board, and then it still requires further approval the President —CORPORATION
and not all theLAW CASE DIGESTS
members |1
of the Board,
by the National Investment and Development or so much thereof as are required for the act — shall
Corporation (NIDC), a government owned and sign it for the corporation. This is the import of the
controlled corporation because Prime White is a words through the president in Exhibit "8-A" and the
subsidiary of NIDC. clear intent of the power of the chairman "to execute
and sign for and in behalf of the corporation all
Henry Yao asserts that the letter from Maglana is a contracts and agreements which the corporation may
binding contract because it was made under the enter into" in Exhibit "I-1". Both powers presuppose a
apparent authority of Maglana. The trial court ruled in prior act of the corporation exercised through the Board
favor of Yao Ka Sin. The Court of Appeals reversed the of Directors.
trial court.
The rule is of course settled that "[a]lthough an officer
ISSUE: Whether or not the president of a corporation is or agent acts without, or in excess of, his actual
clothed with apparent authority to enter into binding authority if he acts within the scope of an apparent
contracts with third persons without the authority of authority with which the corporation has clothed him by
the Board. holding him out or permitting him to appear as having
such authority, the corporation is bound thereby in
RULING: No. The Board may enter into contracts favor of a person who deals with him in good faith in
through the president. The president may only enter reliance on such apparent authority, as where an officer
into contracts upon authority of the Board. Hence, any is allowed to exercise a particular authority with respect
agreement signed by the president is subject to to the business, or a particular branch of it, continuously
approval by the Board. Unlike a general manager (like and publicly, for a considerable time." Also, "if a private
the case of Francisco vs GSIS), the president has no corporation intentionally or negligently clothes its
apparent authority to enter into binding contracts with officers or agents with apparent power to perform acts
third persons. Further, if indeed the by-laws of Prime for it, the corporation will be estopped to deny that
White did provide Maglana with apparent authority, such apparent authority in real, as to innocent third
this was not proven by Yao Ka Sin. persons dealing in good faith with such officers or
agents." This "apparent authority may result from (1)
Since a corporation, such as the private respondent, can the general manner, by which the corporation holds out
act only through its officers and agents, "all acts within an officer or agent as having power to act or, in other
the powers of said corporation may be performed by words, the apparent authority with which it clothes him
agents of its selection; and, except so far as limitations to act in general or (2) acquiescence in his acts of a
 particular nature, with actual or constructive knowledge ruled against the nomination of two more persons since
thereof, whether within or without the scope of his the nine directors as allowed by the agreement were
ordinary powers. already picked. Some members conducted a different
It was incumbent upon the petitioner to prove that election where ASI nominated four members to the
indeed the private respondent had clothed Mr. Maglana board.
with the apparent power to execute Exhibit "A" or any
similar contract. This could have been easily done by This trigerred the filing of petiton for preliminary
evidence of similar acts executed either in its favor or in injunction by the Filipino group (Lagdameo Group) and
favor of other parties. Petitioner miserably failed to do a petiton for quo warranto and application for
that. Upon the other hand, private respondent's receivership by the ASI group (Aurbach).
evidence overwhelmingly shows that no contract can be
signed by the president without first being approved by The Securities and Exchange Commission upheld the
the Board of Directors; such approval may only be given election of the Lagdameo group and denied the quo
after the contract passes through, at least, the warranto. The IAC remanded the case to SEC upon
comptroller, who is the NIDC representative, and the appeal.
legal counsel.
ISSUE: Whether or not Section 24 of the Corporation
As a rule, apparent authority may result from (1) the Code which gives stockholders the right to accumulate
general manner, by which the corporation holds out an their votes in electing directors is applicable to
officer or agent as having power to act or, in other Saniwares, a joint venture.
words, the apparent authority with which it clothes him
to act in general or (2) acquiescence in his acts of a RULING: No, Saniwares ASI stockholders may not avail
particular nature, with actual or constructive knowledge of Sec 24 of the Corporation Code.
thereof, whether within or without the scope of his The history and arrangements governing the policy
ordinary powers. These are not present in this case. making of Saniware are consistent with a joint venture
and not an ordinary corporation.
Also, the subsequent letter by Prime White to Yao Ka
Sin is binding because Yao Ka Sin’s failure to respond "Joint venture is hardly distinguishable from partnership
constitutes an acceptance, per stated in the letter itself since their elements are similar. The main distinction
– which was not contested by Henry Yao during trial. cited by most opinions in common law jurisdictions is
that the partnership contemplates a general business
2 2. GR No. 75875, December 15, 1989 with some degree CORPORATION
of continuity,LAW CASE
while the DIGESTS |1
joint venture
Aurbach v Sanitary Wares is formed for the execution of a single transaction, and
is thus of a temporary nature. This observation is not
FACTS: In 1961, Sanitary Wares Manufacturing entirely accurate in this jurisdiction, since under the
Corporation (Saniwares) was incorporated for the Civil Code, a partnership may be particular or universal,
primary purpose of manufacturing and marketing and a particular partnership may have for its object a
sanitary wares. specific undertaking. (Art. 1783, Civil Code). It would
seem therefore that under Philippine law, a joint
On 15 August 1962, American Standard Inc (ASI), a venture is a form of partnership and should thus be
foreign corporation, entered into an agreement with governed by the law of partnerships. The Supreme
Saniwarse and some Filipino investors to participate in Court has however recognized a distinction between
the ownership of an enterprise which will engage in the these two business forms, and has held that although a
manufacturing in the Philippines and sales here and corporation cannot enter into a partnership contract, it
abroad of china and sanitary wares. The Philippine may however engage in a joint venture with others. "
operations of this enterprise were carried by the
incorporation under the name Sanitary Wares Moreover the right of each group to cumulative voting
Manufacturing Corporation. shall be primarily governed by their Agreement which
denies ASI the right to do so. SEC decision affirmed.
One of the contents of the agreement was that ASI will
own 30% of the outstanding stocks and in turn, it shall 3. MENDEZ vs PEOPLE
have the power to designate three out of the nine G.R. No. 179962 June 11, 2014DR. JOEL C. MENDEZ,
directors of the company. Petitioner, vs. PEOPLE OF THE PHILIPPINES,
Respondents.
Later, ASI's stake expanded to 40%.
FACTS: The BIR alleged that petitioner failed to file his
The parties reached a disagreement because of the income tax returns for taxable years 2001 to 2003 and,
desire to expand the company's export operations consequently evaded his obligation to pay the correct
which ASI objected to since they have joint ventures in amount of taxes due the government.
countries where the expansion was contemplated.
In his defense, the petitioner admitted that he has been
On 8 March 1983, the annual stockholders' meeting was operating as a single proprietor under these trade
held. Duting the meeting, the chairman, Baldwin Young names in Quezon City, Makati, Dagupan and San
 Fernando. However, he countered that he did not file Feliciano vs. Commission on Audit
his income tax returns in these places because his
business establishments were registered only in 2003 at FACTS: A Special Audit Team from Commission on Audit
the earliest; thus, these business establishments were (COA) Regional Office No. VIII audited the accounts of
not yet in existence at the time of his alleged failure to the Leyte Metropolitan Water District (LMWD).
file his income tax return. Subsequently, LMWD received a letter from COA dated
19 July 1999 requesting payment of auditing fees. As
The accused was arraigned and pleaded not guilty. After General Manager of LMWD, Engr. Ranulfo C. Feliciano
arraignment, prosecution filed a "Motion to Amend sent a reply dated 12 October 1999 informing COA’s
Information with Leave of Court. Among the changes Regional Director that the water district could not pay
was the change in the name of his business to include the auditing fees. Feliciano cited as basis for his action
the phrase "Mendez Medical Group". Sections 6 and 20 of PD 198, as well as Section 18 of RA
6758. The Regional Director referred Feliciano’s reply to
The petitioner adds that the change of name to the COA Chairman on 18 October 1999. On 19 October
"Mendez Medical Group" deprived him of the right, 1999, Feliciano wrote COA through the Regional
during the preliminary investigation, to present Director asking for refund of all auditing fees LMWD
evidence against the alleged operation and or existence previously paid to COA. On 16 March 2000, Feliciano
of this entity. received COA Chairman Celso D. Gangan’s Resolution
dated 3 January 2000 denying Feliciano’s request for
ISSUE: Whether or not Mendez Medical Group has a COA to cease all audit services, and to stop charging
distinct entity. auditing fees, to LMWD. The COA also denied Feliciano’s
request for COA to refund all auditing fees previously
HELD: No. The Court reject for lack of merit petitioner's paid by LMWD. Feliciano filed a motion for
claim that the inclusion of the phrase "doing business reconsideration on 31 March 2000, which COA denied
under the name and style of Mendez Medical Group" on 30 January 2001. On 13 March 2001, Felicaino filed
after his preliminary investigation and arraignment the petition for certiorari.
deprives him of the right to question the existence of
this "entity." It was argued that the COA had no jurisdiction to audit
LWD since it was not a private corporation but a GOCC.
The petitioner however has not drawn our attention to
any of his related operations that actually possesses its ISSUE: Whether a Local Water District (“LWD”) is a
3 own juridical personality. In the original information, CORPORATION
government-owned LAW
or controlled CASE DIGESTS | 1
corporation.
petitioner is described as "sole proprietor of Weigh Less
Center." A sole proprietorship is a form of business HELD: The Constitution recognizes two classes of
organization conducted for profit by a single corporations. The first refers to private corporations
individual, and requires the proprietor or owner created under a general law. The second refers to
thereof, like the petitioner-accused, to secure licenses government-owned or controlled corporations created
and permits, register the business name, and pay taxes by special charters. The Constitution emphatically
to the national government without acquiring juridical prohibits the creation of private corporations except by
or legal personality of its own. a general law applicable to all citizens. The purpose of
this constitutional provision is to ban private
In the amended information, the prosecution corporations created by special charters, which
additionally alleged that petitioner is "doing business historically gave certain individuals, families or groups
under the name and style of ‘Weigh Less special privileges denied to other citizens. In short,
Center’/Mendez Medical Group.’" Given the nature of a Congress cannot enact a law creating a private
sole proprietorship, the addition of the phrase "doing corporation with a special charter. Such legislation
business under the name and style" is merely would be unconstitutional. Private corporations may
descriptive of the nature of the business organization exist only under a general law. If the corporation is
established by the petitioner as a way to carry out the private, it must necessarily exist under a general law.
practice of his profession. As a phrase descriptive of a Stated differently, only corporations created under a
sole proprietorship, the petitioner cannot feign general law can qualify as private corporations. Under
ignorance of the "entity" "Mendez Medical Group" existing laws, that general law is the Corporation Code,
because this entity is nothing more than the shadow of except that the Cooperative Code governs the
its business owner - petitioner himself. incorporation of cooperatives. The Constitution
authorizes Congress to create government-owned or
controlled corporations through special charters. Since
private corporations cannot have special charters, it
follows that Congress can create corporations with
special charters only if such corporations are
government-owned or controlled. Obviously, LWDs are
B. CLASSES OF CORPORATIONS not private corporations because they are not created
under the Corporation Code. LWDs are not registered
1. GR 147402, 14 January 2004 with the Securities and Exchange Commission.
 Section 14 of the Corporation Code states that “[A]ll COA may charge GOCCs "actual audit cost" but GOCCs
corporations organized under this code shall file with must pay the same directly to COA and not to COA
the Securities and Exchange Commission articles of auditors. Petitioner has not alleged that COA charges
incorporation x x x.” LWDs have no articles of LWDs auditing fees in excess of COAs "actual audit
incorporation, no incorporators and no stockholders or cost." Neither has petitioner alleged that the auditing
members. There are no stockholders or members to fees are paid by LWDs directly to individual COA
elect the board directors of LWDs as in the case of all auditors.
corporations registered with the Securities and
Exchange Commission. The local mayor or the provincial C. NATIONALITY OF CORPORATIONS
governor appoints the directors of LWDs for a fixed
term of office. LWDs exist by virtue of PD 198, which 1. NARRA NICKEL MINING AND DEVELOPMENT CORP.
constitutes their special charter. Since under the vs. REDMONT CONSOLIDATED MINES CORP.
Constitution only government-owned or controlled 722 SCRA 382
corporations may have special charters, LWDs can
validly exist only if they are government-owned or FACTS: Redmont, a domestic corporation organized and
controlled. To claim that LWDs are private corporations existing under Philippine laws, took interest in mining
with a special charter is to admit that their existence is and exploring certain areas of the province of Palawan.
constitutionally infirm. Unlike private corporations, However, the areas it sought to explore were already
which derive their legal existence and power from the covered by the Mineral Production Sharing Agreement
Corporation Code, LWDs derive their legal existence and (MPSA) applications of Narra, Tesoro and McArthur
power from PD 198. companies.

Redmont opposed their applications on the ground that

Clearly, LWDs exist as corporations only by virtue of PD at least 60% of the capital stock of McArthur, Tesoro
198, which expressly confers on LWDs corporate and Narra are owned and controlled by a common
powers. Section 6 of PD 198 provides that LWDs "shall shareholder, MBMI Resources Inc., a 100% Canadian
exercise the powers, rights and privileges given to corporation.
private corporations under existing laws." Without PD
198, LWDs would have no corporate powers. Thus, PD Since MBMI was alleged to be the ultimate driving force
198 constitutes the special enabling charter of LWDs. behind Narra, Tesoro and McArthur, Redmont argued
4 The ineluctable conclusion is that LWDs are that they shouldCORPORATION LAWtoCASE
not be qualified DIGESTS
engage |1
in mining
government-owned and controlled corporations with a activities, which is a partly nationalized activity.
special charter.
The phrase "government-owned and controlled Narra, Tesoro and McArthur argued that, applying the
corporations with original charters" means GOCCs control test, they should be considered Philippine
created under special laws and not under the general corporations since on paper, it clearly appears that at
incorporation law. There is no difference between the least 60% of their capital is owned by Filipinos.
term "original charters" and "special charters."
But Redmont argued that given the circumstances, it is
Certainly, the government owns and controls LWDs. The the grandfather rule which should be applied.
government organizes LWDs in accordance with a
specific law, PD 198. There is no private party involved ISSUE: Whether or not Narra Nickel Mining and Devt
as co-owner in the creation of an LWD. Just prior to the Corp is a foreign corporation.
creation of LWDs, the national or local government
owns and controls all their assets. The government HELD: YES. In finally applying the grandfather rule and
controls LWDs because under PD 198 the municipal or declaring that the corporations are indeed not qualified
city mayor, or the provincial governor, appoints all the to engage in mining activities in the Philippines, the
board directors of an LWD for a fixed term of six years. Supreme Court found that the corporation crafted a
“web of corporate layering,” whereby at face value, it
If LWDs are neither GOCCs with original charters nor appears that the corporations satisfy the Filipino equity
GOCCs without original charters, then they would fall requirement, but in truth the ultimate controlling
under the term "agencies or instrumentalities" of the shareholders are foreigners.
government and thus still subject to COAs audit
jurisdiction. However, the stark and undeniable fact is Though the Supreme Court recognized that corporate
that the government owns LWDs. Section 4527 of PD layering is allowed by law, it drew the line in cases when
198 recognizes government ownership of LWDs when it is used to skirt around the Constitution and pertinent
Section 45 states that the board of directors may laws.
dissolve an LWD only on the condition that "another
public entity has acquired the assets of the district and Thus, the Supreme Court did away with the control test
has assumed all obligations and liabilities attached and applied the grandfather rule because it found the
thereto." The implication is clear that an LWD is a public nationalities of the corporations to be “in doubt,” as
and not a private entity. shown by the following indicia:
 is an independent contractor and the real employer of
• The corporations have a common major investor, the petitioners. It was RDG, which hired and selected
MBMI, a 100% foreign corporation; petitioners, paid their salaries and wages, and directly
supervised their work.
• Their corporate structures and nominal shareholders
are the same; Both Labor Arbiter and NLRC ruled that petitioners are
Petron’s regular employees. CA however ruled
• During the pendency of the cases, the corporations otherwise stating that there is no employer-employee
moved to convert their MPSA applications to financial relationship, and that RDG is in fact an independent
or technical assistance agreements instead; labor contractor with sufficient capitalization and
investment. The Motion for Reconsideration by
• The corporate documents of MBMI show that its Petitioners was dismissed, hence this petition.
operations are only through its local counterparts;
ISSUE: Whether or not Petron is liable for petitioners’
• In the course of the proceedings, MBMI suddenly dismissal.
divested its interest to another company and
subsequently claimed that the cases are now moot. The HELD: YES. Petitioners were hired by Romeo or his
Supreme Court agreed with the ruling of the Court of father and that their salaries were paid by them do not
Appeals who found these actions highly suspicious. detract from the conclusion that there exists an
employer-employee relationship between the parties
These clearly show the pitfall of the control test -- it is as due to Petron's power of control over the petitioners.
easy and more convenient to circumvent as it is easy
and more convenient to use and apply in determining Petitioners were given various work assignments such
the nationality of a corporation. as tanker receiving, barge loading, sounding, gauging,
warehousing, mixing, painting, carpentry, driving, gasul
Through the application of the grandfather rule, the SC filling and other utility works.  Petron refers to these
held that the petitioners Narra Nickel, Tesoro, and work assignments as menial works which could be
MacArthur Mining are not considered Philippine performed by any able-bodied individual.  The Court
nationals since MBMI, a 100% Canadian corporation, finds, however, that while the jobs performed by
owns 60% or more of their equity shares interests. petitioners may be menial and mechanical, they are
nevertheless necessary and related to Petron's business
5 Hence, as non-Philippine nationals, they are disqualified CORPORATION
operations.  If not LAW
for these tasks, CASE DIGESTS
Petron's products|will
1
to participate in the exploration, utilization and not reach the consumers in their proper state. Indeed,
development of the Philippine natural resources. petitioners' roles were vital inasmuch as they involve
the preparation of the products that Petron will
2. ALILIN vs. PETRON CORPORATION distribute to its consumers.
725 SCRA 342
In sum, the Court finds that RDG is a labor-only
FACTS: Petron is a domestic corporation engaged in the contractor.  As such, it is considered merely as an agent
oil business. In 1968, Romualdo D. Gindang Contractor, of Petron.  Consequently, the employer-employee
owned and operated by Romualdo D. Gindang, started relationship which the Court finds to exist in this case is
recruiting laborers for fielding to Petron’s Mandaue between petitioners as employees and Petron as their
Bulk Plant. When Romualdo died in 1989, his son employer.  Petron therefore, being the principal
Romeo, through Romeo D. Gindang Services (RDG), took employer and RDG, being the labor-only contractor, are
over and continued to provide manpower services to solidarily liable for petitioners' illegal dismissal and
Petron. Petron and RDG entered into a Contract for monetary claims.
Services from June 1, 2000 to May 31, 2002, to provide
Petron with janitorial, maintenance, tanker receiving, In sum, the Court finds that RDG is a labor-only
packaging and other utility services. This was extended contractor.  As such, it is considered merely as an agent
until Sept 30, 2002. Upon expiration, no renewal was of Petron.  Consequently, the employer-employee
done and workers were dismissed. Petitioners filed an relationship which the Court finds to exist in this case is
illegal dismissal complaint against Petron alleging that between petitioners as employees and Petron as their
they were barred from continuing their services on Oct employer.  Petron therefore, being the principal
16, 2002. Petitioners claim that although it was RDG employer and RDG, being the labor-only contractor, are
who hired them and paid their salaries, RDG is a labor- solidarily liable for petitioners' illegal dismissal and
only contractor, acting as an agent of Petron, their true monetary claims.
employer. Claiming to be regular employees, petitioners
asserted that their dismissal allegedly in view of the 3. G.R. No. L-3869, January 31, 1952
expiration of the service contract between Petron and S. David Winship vs Philippine Trust Company
RDG is illegal. RDG denied liability over petitioners’
claim of illegal dismissal while also corroborating FACTS: Prior to December 1941, the Eastern Isles Import
petitioners’ claim that they are regular employees of Corporation, which is mainly owned by American
Petron. Petron, on the other hand, maintained that RDG citizens, had a current account deposit with the Phil
 Trust Company. Then later, the Japanese administration
issued an order requiring all deposit accounts of the 4. FILIPINAS COMPANIA DE SEGUROS vs. CHRISTERN
hostile people to be transferred to the bank of Taiwan. HUENEFELD and CO., INC. 89 Phil 54
In compliance, Phil. Trust transferred and paid the DECEMBER 21, 2016
credit balances of the current account deposits of the
corporation to the bank of Taiwan. FACTS: On October 1, 1941, the respondent
corporation, Christern Huenefeld and Co., Inc., after
The pre-war current deposit accounts of the Eastern payment of corresponding premium, obtained from the
Isles Import Corporation and of the Eastern Isles, Inc. petitioner, Filipinas Cia de Seguros fire policy covering
were subsequently transferred to S. Davis Winship who, merchandise contained in a building located at Binondo,
on August 12, 1947, presented to the Philippine Trust Manila. On February 27, 1942 or during the Japanese
Company checks Nos. A-79212 and H-579401 covering military occupation, the building and insured
the aforesaid deposits. The Philippine Trust Company, merchandise were burned. In due time, the respondent
however, refused to pay said checks, whereupon, on submitted to the petitioner its claim under the policy.
September 6, 1947, S. Davis Winship instituted the The petitioner refused to pay the claim on the ground
present action against the Philippine Trust Company in that the policy in favor of the respondent that ceased to
the Court of First Instance of Manila, to recover upon be a force on the date the United States declared war
the first cause of action the sum of P51,410.91 and against Germany, the respondent corporation (through
under the second cause of action the sum of organized under and by virtue of the laws of Philippines)
P34,827.74. being controlled by German subjects and the petitioner
being a company under American jurisdiction when said
In its answer, the defendant Philippine trust Company policy was issued on October 1, 1941. The theory of the
invoked the order of the Japanese Military petitioner is that the insured merchandise was burned
Administration by virtue of which it transferred the after the policy issued in 1941 had ceased to be
current deposit accounts in question to the Bank of effective because the outbreak of the war between
Taiwan as the depository of the Bureau of Enemy United States and Germany on December 10, 1941, and
Property Custody of the Japanese Military that the payment made by the petitioner to the
Administration. respondent corporation during the Japanese military
occupation was under pressure.
After trial, the Court of First Instance of Manila
rendered a decision upholding the contention of the ISSUE: Whether or not the respondent corporation is a
6 defendant and accordingly dismissing the complaint. CORPORATION
corporation of public enemy. LAW CASE DIGESTS | 1

ISSUE: Whether or not Eastern Isles Import Corporation RULING: Since the majority of stockholders of the
and Eastern Isles, Inc. are foreign corporations. respondent corporation were German subjects, the
respondent became an enemy of the state upon the
RULING: YES. The SC affirm the appealed judgment. As outbreak of the war between US and Germany. The
it has been stipulated by the parties that the defendant English and American cases relied upon by the Court of
transferred the deposits in question to the Bank of Appeals lost in force upon the latest decision of the
Taiwan in compliance with the order of the Japanese Supreme Court of US in which the control test has
Military Administration, the defendant was released adopted.
from any obligation to the depositors or their
transferee. Appellant's contention that there is no Since World War I, the determination of enemy
positive showing that the transfer was made by the nationality of corporations has been discussed in many
Philippine Trust Company in compliance with the order countries, belligerent and neutral. A corporation was
of the Japanese Military Administration, and its logical subject to enemy legislation when it was controlled by
effect is to make such act binding on said company. At enemies, namely managed under the influence of
any rate, the defendant corporation has not impugned individuals or corporations themselves considered as
its validity. enemies…

In the case of Filipinas Compañia de Seguros vs. The Philippine Insurance Law (Act No 2427, as
Christern Henefeld and Co., Inc., Phil., 54, we held that amended), in Section 8, provides that “anyone except a
the nationality of a private corporation is determined by public enemy may be insured”. It stands to reason that
the character or citizenship of its controlling an insurance policy ceases to be allowable as soon as an
stockholders; and this pronouncement is of course insured becomes a public enemy.
decisive as to the hostile character of the Eastern Isles,
Inc., as far as the Japanese Military Administration was The respondent having an enemy corporation on
concerned, it being conceded that the controlling December 10, 1941, the insurance policy issued in its
stockholders of said corporations were American favor on October 1, 1941, by the petitioner had ceased
citizens. to be valid and enforceable, and since the insured good
were burned during the war, the respondent was not
Wherefore, the appealed judgment is affirmed, with entitled to any indemnity under said policy from the
costs against the appellant. petitioner. However, elementary rule of justice (in the
 absence of specific provisions in the Insurance Law) banks. Among the terms of the agreement was the
require that the premium paid by the respondent for merger of FISLAI and DSLAI, with DSLAI as the
the period covered by its policy from December 11, surviving corporation. DSLAI later became known as
1941, should be returned by the petitioner. Mindanao Savings and Loan Association, Inc.
(MSLAI). 21
D. CORPORATE JURIDICAL PERSONALITY
MSLAI failed to recover from its losses and
1. G.R. Nos. 194964-65. January 11, 2016 was liquidated. 23
UNIVERSITY OF MINDANAO, INC.,
petitioner, vs. BANGKO SENTRAL NG PILIPINAS, ET On June 18, 1999, Bangko Sentral ng Pilipinas
AL., respondents. sent a letter to University of Mindanao, informing it
that the bank would foreclose its properties if
Acts of an officer that are not authorized by the board MSLAI's total outstanding obligation of
of directors/trustees do not bind the corporation P12,534,907.73 remained unpaid. 24
unless the corporation ratifies the acts or holds the
officer out as a person with authority to transact on its In its reply, University of Mindanao, through
behalf. its Vice President for Accounting, Gloria E. Detoya,
denied that University of Mindanao's properties
Facts: University of Mindanao is an educational were mortgaged. It also denied having received any
institution. For the year 1982, its Board of Trustees was loan proceeds from Bangko Sentral ng
chaired by Guillermo B. Torres. His wife, Dolores P. Pilipinas. 25 DETACa
Torres, sat as University of Mindanao's Assistant
Treasurer. On July 16, 1999, UM filed two Complaints
for nullification and cancellation of mortgage.
Before 1982, Guillermo B. Torres and Dolores
P. Torres incorporated and operated two (2) thrift University of Mindanao also alleged that
banks: (1) First Iligan Savings & Loan Association, Inc. Aurora de Leon's certification was anomalous. That,
(FISLAI); and (2) Davao Savings and Loan Association, it never authorized Saturnino Petalcorin to execute
Inc. (DSLAI). Guillermo B. Torres chaired both thrift real estate mortgage contracts involving its
banks. He acted as FISLAI's President, while his wife, properties to secure FISLAI's debts. That it never
Dolores P. Torres, acted as DSLAI's President and ratified the execution of the mortgage contracts.
7 FISLAI's Treasurer. 6 Moreover, asCORPORATION
an educationalLAW CASE DIGESTS
institution, |1
it cannot
mortgage its properties to secure another person's
Upon Guillermo B. Torres' request, Bangko debts. 28
Sentral ng Pilipinas issued a P1.9 million standby RTC CDO- in favor of UM
emergency credit to FISLAI. The release of standby RTC Iligan- in favor of UM
emergency credit was evidenced by three (3) CA- in favor of BSP
promissory notes which were all signed by Guillermo
B. Torres, and were co-signed by either his wife, Issue:
Dolores P. Torres, or FISLAI's Special Assistant to the WON University of Mindanao is bound by the real
President, Edmundo G. Ramos, Jr. 7 estate mortgage contracts executed by Saturnino
Petalcorin?
On May 25, 1982, University of Mindanao's
Vice President for Finance, Saturnino Petalcorin, Ruling: NO.
executed a deed of real estate mortgage over The mortgage contracts executed in favor of
University of Mindanao's property in CDO in favor of respondent do not bind petitioner. They were
BSP. TE executed without authority from petitioner.

As proof of his authority thereof, Petalcorin Petitioner must exercise its powers and
showed a Secretary's Certificate signed by University conduct its business through its Board of Trustees.
of Mindanao's Corporate Secretary, Aurora de Leon.  Section 23 of the Corporation Code provides:
SEC. 23. The board of directors or trustees. —
An additional loan of P620,700.00 was Unless otherwise provided in this Code, the
granted by BSP to FISLAI. corporate powers of all corporations formed
under this Code shall be exercised, all
Saturnino Petalcorin executed another deed business conducted and all property of such
of real estate mortgage, allegedly on behalf of corporations controlled and held by the
University of Mindanao, over its two properties in board of directors or trustees to be elected
Iligan City as additional security for FISLAI's loans. from among the holders of stocks, or where
there is no stock, from among the members
On January 11, 1985, FISLAI, DSLAI, and Land of the corporation, who shall hold office for
Bank of the Philippines entered into a Memorandum one (1) year and until their successors are
of Agreement intended to rehabilitate the thrift elected and qualified.
 Being a juridical person, petitioner cannot Facts: LMI is the absolute owner of a property
conduct its business, make decisions, or act in any located at 2326 Pasong Tamo Extension, Makati City
manner without action from its Board of Trustees. with a total area of approximately 2,860 square
The Board of Trustees must act as a body in order to meters. 5 On June 24, 1994, it entered into a contract
exercise corporate powers. Individual trustees are with NCLPI for the latter to lease the property for a
not clothed with corporate powers just by being a term of ten (10) years (or from July 1, 1994 to June 30,
trustee. Hence, the individual trustee cannot bind 2004) with a monthly rental of P308,000.00 and an
the corporation by himself or herself. annual escalation rate of ten percent (10%). 

The corporation may, however, delegate Subsequently, NCLPI became delinquent in

through a board resolution its corporate powers or paying the monthly rent, such that its total rental
functions to a representative, subject to limitations arrearages 8 amounted to P1,741,520.85. 9 In May
under the law and the corporation's articles of 1996, Nissan and Lica verbally agreed to convert the
incorporation. 112 arrearages into a debt to be covered by a promissory
note and twelve (12) postdated checks, each
The relationship between a corporation and amounting to P162,541.95 as monthly payments
its representatives is governed by the general starting June 1996 until May 1997. 10
principles of agency. 113 Article 1317 of the Civil
Code provides that there must be authority from the While NCLPI was able to deliver the
principal before anyone can act in his or her name: postdated checks per its verbal agreement with LMI,
ART. 1317. No one may contract in the name it failed to sign the promissory note and pay the
of another without being authorized by the checks for June to October 1996. Thus, in a letter
latter, or unless he has by law a right to dated October 16, 1996, which was sent on October
represent him. 18, 1996 by registered mail, LMI informed NCLPI that
it was terminating their Contract of Lease due to
Hence, without delegation by the board of arrears in the payment of rentals. It also demanded
directors or trustees, acts of a person — including that NCLPI (1) pay the amount of P2,651,570.39 for
those of the corporation's directors, trustees, unpaid rentals 11 and (2) vacate the premises within
shareholders, or officers — executed on behalf of the five (5) days from receipt of the notice. 12 CAIHTE
corporation are generally not binding on the
8 corporation. 114 In theCORPORATION LAW CASE
meantime, Proton sentDIGESTS
NCLPI |an
1
undated request to use the premises as a temporary
Contracts entered into in another's name display center for "Audi" brand cars for a period of
without authority or valid legal representation are ten (10) days. In the same letter, Proton undertook
generally unenforceable. "not to disturb [NCLPI and LMI's] lease agreement
and ensure that [NCLPI] will not breach the same [by]
The unenforceable status of contracts lending the premises . . . without any
entered into by an unauthorized person on behalf of consideration." 13 NCLPI acceded to this request. 14
another is based on the basic principle that contracts
must be consented to by both parties. 115 There is On October 11, 1996, NCLPI entered into a
no contract without meeting of the minds as to the Memorandum of Agreement with Proton whereby
subject matter and cause of the obligations created the former agreed to allow Proton "to immediately
under the contract.116 commence renovation work even prior to the
execution of the Contract of Sublease . . . ." 15 In
Consent of a person cannot be presumed consideration, Proton agreed to transmit to NCLPI a
from representations of another, especially if check representing three (3) months of rental
obligations will be incurred as a result. Thus, payments, to be deposited only upon the due
authority is required to make actions made on his or execution of their Contract of Sublease. 16
her behalf binding on a person. Contracts entered
into by persons without authority from the LMI, on November 8, 1996, entered into a
corporation shall generally be considered ultra Contract of Lease with Proton over the subject
vires and unenforceable 117 against the corporation. premises. 18

However, personal liabilities may be incurred On November 12, 1996, LMI filed a
by directors who assented to such unauthorized Complaint 19 for sum of money with damages
act 121 and by the person who contracted in excess seeking to recover from NCLPI the amount of
of the limits of his or her authority without the P2,696,639.97.
corporation's knowledge. 122
NCLPI demanded Proton to vacate the leased
2. NISSAN CAR LEASE PHILS., INC., petitioner, vs. LICA premises. 21 However, Proton replied that it was
MANAGEMENT, INC. and PROTON PILIPINAS, occupying the property based on a lease contract
INC., respondents. [G.R. No. 176986. January 13, 2016.] with LMI. 22
 NCLPI filed its Answer 25 and Third-Party 3. EMERITA G. MALIXI,  petitioner,  vs. MEXICALI
Complaint 26 against Proton. PHILIPPINES and/or FRANCESCA
MABANTA,  respondents. [G.R. No. 205061. June 8,
The trial court admitted 29 the third-party 2016.]
complaint over LMI's opposition.
Facts:
Eventually, the case reached the SC in a This case arose from an Amended
Petition for Review on Certiorari. Complaint 6 for illegal dismissal and non-payment of
service charges, moral and exemplary damages and
Issue: attorney's fees filed by petitioner against
WON Banson, the person who caused the preparation respondents Mexicali and its General Manager,
of the petition was authorized to do so? Francesca Mabanta, on February 4, 2009 before the
Labor Arbiter.
Ruling: YES.
According to LMI, NCLPI's petition must be Petitioner alleged that on August 12, 2008,
denied outright on the ground that Luis Manuel T. she was hired by respondents as a team leader
Banson (Banson), who caused the preparation of the assigned at the delivery service, receiving a daily
petition and signed the Verification and Certification wage of Three Hundred Eighty Two Pesos (P382.00)
against Forum Shopping, was not duly authorized to sans employment contract and identification card
do so. His apparent authority was based, not by (ID). In October 2008, Mexicali's training officer, Jay
virtue of any NCLPI Board Resolution, but on a Teves (Teves), informed her of the management's
Special Power of Attorney (SPA) signed only by intention to transfer and appoint her as store
NCLPI's Corporate Secretary Robel C. Lomibao. 53 manager at a newly opened branch in Alabang Town
Center, which is a joint venture between Mexicali
As a rule, a corporation has a separate and and Calexico Food Corporation (Calexico), due to her
distinct personality from its directors and officers and satisfactory performance. She was apprised that her
can only exercise its corporate powers through its monthly salary as the new store manager would be
board of directors. Following this rule, a verification Fifteen Thousand Pesos (P15,000.00) with service
and certification signed by an individual corporate charge, free meal and side tip. She then
officer is defective if done without authority from the subsequently submitted a resignation letter 7 dated
9 corporation's board of directors. 54 CORPORATION
October 15, 2008, as advisedLAW CASE DIGESTS
by Teves. |1
On October
17, 2008, she started working as the store manager
The requirement of verification being a of Mexicali in Alabang Town Center although, again,
condition affecting only the form of the no employment contract and ID were issued to her.
pleading, 55 this Court has, in a number of cases, However, in December 2008, she was compelled by
held that: Teves to sign an end-of-contract letter by reason of a
[T]he Following officials or employees of the criminal complaint for sexual harassment she filed on
company can sign the verification and December 3, 2008 against Mexicali's operations
certification without need of a board manager, John Pontero (Pontero), for the sexual
resolution: (1) the Chairperson of the Board advances made against her during Pontero's visits at
of Directors, (2) the President of a Alabang branch. 8 When she refused to sign the end-
corporation, (3) the General Manager or of-contract letter, Mexicali's administrative officer,
Acting General Manager, (4) Personnel Ding Luna (Luna), on December 15, 2008, personally
Officer, and (5) an Employment Specialist in a went to the branch and caused the signing of the
labor case. aDSIHc same. Upon her vehement refusal to sign, she was
. . . [T]he determination of the sufficiency of informed by Luna that it was her last day of work.
the authority was done on a case to case
basis. The rationale applied in the foregoing Respondents, however, denied responsibility
cases is to justify the authority of corporate over petitioner's alleged dismissal. They averred that
officers or representatives of the petitioner has resigned from Mexicali in October
corporation to sign . . ., being "in a position 2008 and hence, was no longer Mexicali's employee
to verify the truthfulness and correctness of at the time of her dismissal but rather an employee
the allegations in the of Calexico, a franchisee of Mexicali located in
petition." 56 (Emphasis and underscoring Alabang Town Center which is a separate and distinct
supplied) corporation. CAIHTE

In this case, Banson was President of NCLPI In her reply, petitioner admitted having
at the time of the filing of the petition. 57 Thus, and resigned from Mexicali but averred that her
applying the foregoing ruling, he can sign the resignation was a condition for her promotion as
verification and certification against forum shopping store manager at Mexicali's Alabang Town Center
in the petition without the need of a board branch. She asserted that despite her resignation,
resolution.  she remained to be an employee of Mexicali because
 Mexicali was the one who engaged her, dismissed the proof required, however, this, by itself, is not
her and controlled the performance of her work as sufficient evidence to pierce the corporate veil
store manager in the newly opened branch. between Mexicali and Calexico.

Labor Arbiter- declared petitioner to have been Side issue on er-ee rel.
illegally dismissed by respondents. By piercing the WON there was er-ee rel? NO.
veil of corporate fiction, the Labor Arbiter ruled that There was no existing employer-employee
Mexicali and Calexico are one and the same with relationship between petitioner and Mexicali. To
interlocking board of directors. The Labor Arbiter prove petitioner's claim of an employer-employee
sustained petitioner's claim that she is an employee relationship, the following should be established by
of Mexicali as she was hired at Calexico by Mexicali's competent evidence: "(1) the selection and
corporate officers and also dismissed by them and engagement of the employee; (2) the payment of
hence, held Mexicali responsible for petitioner's wages; (3) the power of dismissal; and (4) the power
dismissal. of control over the employee's
conduct." 36 "Although no particular form of
National Labor Relations Commission- evidence is required to prove the existence of the
Mexicali and Calexico are separate and relationship, and any competent and relevant
distinct entities, Calexico being the true employer of evidence to prove the relationship may be admitted,
petitioner at the time of her dismissal. Contrary to a finding that the relationship exists must
the findings of the Labor Arbiter, petitioner nonetheless rest on substantial evidence, which is
voluntarily resigned from Mexicali to transfer to that amount of relevant evidence that a reasonable
Calexico in consideration of a higher pay and upon mind might accept as adequate to justify a
doing so severed her employment ties with Mexicali. conclusion." 37 We find that petitioner failed to
The NLRC, nevertheless, ordered Mexicali, being the establish her claim based on the aforementioned
employer of Teves and Luna who caused petitioner's criteria. As to petitioner's allegation that it was Teves
termination from her employment with Calexico, to who selected and hired her as store manager of
reinstate petitioner to her job at Calexico but Calexico and likewise, together with Luna, initiated
without paying her any backwages. her dismissal, suffice it to state that bare allegations,
unsubstantiated by evidence, are not equivalent to
Court of Appeals- affirmed NLRC proof. 38Nevertheless, Teves merely informed
petitioner of the management's intention to transfer
10 Issue: CORPORATION
her and thereafter advisedLAW herCASE
to DIGESTS
execute| 1a
WON Mexicali and Calexico are separate and distinct resignation letter, to which she complied. Nowhere
entities? was there any allegation or proof that Teves was the
one who directly hired her as store manager of
Ruling: YES. Calexico. Also, Teves and Luna merely initiated
The Labor Arbiter's finding that the two petitioner's dismissal. The end-of-contract
corporations are one and the same with interlocking purportedly signed by Luna to effectuate her
board of directors has no factual basis. It is basic that termination was not presented. Again, mere
"a corporation is an artificial being invested with a allegation is not synonymous with proof. No
personality separate and distinct from those of the substantial evidence was adduced to show that
stockholders and from other corporations to which it respondents had the power to wield petitioner's
may be connected or related." 32 Clear and termination from employment. Anent the element of
convincing evidence is needed to warrant the control, petitioner failed to cite a single instance to
application of the doctrine of piercing the veil of prove that she was subject to the control of
corporate fiction. 33 In our view, the Labor Arbiter respondents insofar as the manner in which she
failed to provide a clear justification for the should perform her work as store manager. The bare
application of the doctrine. The Articles of assertion that she was required to work from Friday
Incorporation and By-Laws of both corporations through Wednesday is not enough indication that
show that they have distinct business locations and the performance of her job was subject to the
distinct business purposes. It can also be gleaned control of respondents. On the other hand, the
therein that they have a different set of payslips 39 presented by petitioner reveal that she
incorporators or directors since only two out of the received her salary from Calexico and no longer from
five directors of Mexicali are also directors of Mexicali starting the month of October 2008. TIADCc
Calexico. At any rate, the Court has ruled that the
existence of interlocking directors, corporate officers 4. [G.R. No. 168134. October 5, 2016.] FERRO
and shareholders is not enough justification to CHEMICALS, INC., petitioner,  vs. ANTONIO M.
disregard the separate corporate personalities. 34 To GARCIA, ROLANDO NAVARRO, JAIME Y. GONZALES
pierce the veil of corporate fiction, there should be and CHEMICAL INDUSTRIES OF THE PHILIPPINES,
clear and convincing proof that fraud, illegality or INC., respondents.
inequity has been committed against third [G.R. No. 168183. October 5, 2016.] JAIME Y.
persons. 35 For while respondents' act of not issuing GONZALES, petitioner, vs. HON. COURT OF APPEALS
employment contract and ID may be an indication of and FERRO CHEMICALS, INC., respondents.
 that may be awarded in favor of the banks. On the
[G.R. No. 168196. October 5, 2016.] ANTONIO M. ground that only absolute transfers of shares are
GARCIA, petitioner, vs. FERRO CHEMICALS, required to be on the corporation's stock and
INC., respondent. transfer books, the Corporate Secretary did not
annotate the banks' claims on Chemical Industries'
Facts: books.
Ferro Chemicals Incorporated (Ferro
Chemicals), is a domestic corporation represented in Subsequently, the RTC issued Orders
this action by its President, Ramon M. Garcia. dismissing Civil Case No. 8527.

Chemical Industries of the Philippines, Inc. The Consortium Banks assailed the
(Chemical Industries), on the other hand, is also a dismissal before the appellate court. During the
domestic corporation. Antonio Garcia is the pendency of the same, the parties agreed to
Chairman of the Board of Directors (BOD) of amicably settle the case, and thus, the creditors
Chemical Industries and a brother of Ferro accepted the offer of the debtors to immediately pay
Chemical's President, Ramon Garcia. Rolando the obligation in exchange for the waiver of
Navarro is the Corporate Secretary of Chemical interests, penalties and attorney's fees. The
Industries while Jaime Gonzales is a close financial compromise agreement, which required Antonio
advisor of Antonio Garcia. CAIHTE Garcia and Dynetics to pay the Consortium Banks the
amount of P145,000,000.00, was consequently
The Deed of Absolute Sale and Purchase of Shares of approved by the CA in a Judgment dated 22 May
Stock 1989. HEITAD
On 15 July 1988, Antonio Garcia and Ferro
Chemicals entered into a Deed of Absolute Sale and The Deed of Right to Repurchase
Purchase of Shares of Stock  5 over 1,717,678 shares After the parties in the  First Consortium
of capital stock of Chemical Industries registered Case  forged a Compromise Agreement, Antonio
under the name of Antonio Garcia which included Garcia and Ferro Chemicals entered into a Deed of
371,697 shares of stocks in Vision Insurance Right to Repurchase. Under the contract, Ferro
Consultants, Inc., (VIC) and his proprietary Chemicals stipulated to sell back the subject shares
membership in Alabang Country Club and Manila to Antonio Garcia within 180 days from its execution
Polo Club. or until 30 August 1989.
11 CORPORATION LAW CASE DIGESTS | 1
Pursuant thereto, Ferro Chemicals remitted Ferro Chemicals however refused to sell back
the amount of P35,462,869.92 to Security Bank and the shares to him for insufficient consideration.
Trust Co. (SBTC) in the form of a check drawn against Instead, Ferro Chemicals opted to cede its rights over
its account with Bank of America. However, since the the subject shares to Chemphil Export and Import
amount was insufficient, the same was not accepted Corporation (Chemphil Export).
by Security Bank. Hence, the obligor consigned it
with the court which adjudicated his liability with First and Second Repurchase Cases
finality.(Security Bank Case) On 21 August 1989, Antonio Garcia initiated
an action for Specific Performance before the RTC
The Compromise Agreement Makati however RTC dismissed the same.
On 17 January 1989, Antonio Garcia entered
into a Compromise Agreement  6 with Philippine Undeterred, Antonio Garcia filed a Second
Investments System Organization (PISO), Bank of the Repurchase Case before the SEC.
Philippine Islands (BPI), Philippine Commercial
International Bank (PCIB), Rizal Commercial Banking Enforcement of the First Consortium Case
Corporation (RCBC) and Land Bank of the Philippines With Antonio Garcia and Dynetics' failure to
(LBP) (collectively known as Consortium Banks) in comply with the compromise agreement, the
connection with the Surety Agreements previously Consortium Banks filed a Motion for Execution. The
contracted by Antonio Garcia and Dynetics sheriff levied the 1,717,678 shares of capital stocks in
Corporation with the Consortium Banks. Chemical Industries that were previously attached.
The Consortium Banks were declared as the highest
The First Consortium Case bidders. 13
The said Compromise Agreement sprang
from Civil Case No. 8527, filed by Antonio Garcia and The RTC thereafter directed the Corporate
Dynetics, Inc. before the RTC of Makati City, seeking Secretary of Chemical Industries to enter the sheriff's
to enjoin the Consortium Banks from collecting the certificate of sale in the company's stock and transfer
amount of P117,800,000.00. books. In effect, the corporate secretary was
enjoined to cancel the certificates of shares of stocks
The RTC issued a Notice of Garnishment over under the name of Antonio Garcia and all those
the 1,717,678 shares of stocks of Antonio Garcia in claiming rights under him and issue new ones in
Chemical Industries to secure any contingent claims favor of the Consortium Banks. 
 and perpetrate a social injustice, or used as a vehicle
The Second Consortium Case to evade obligations. 62
Before the corporate secretary could carry
out the foregoing directive, Chemphil Export filed an It must be stressed at the onset that the sale
Urgent Motion 15 opposing the 4 September 1989 contract was entered by Antonio Garcia in his
RTC Order. personal capacity and not as the President of
Chemical Industries. As aptly found by the CA: 
RTC allowed the intervention. ". . . . As can be gleaned from the
Deed of Sale, [Antonio Garcia] sold the
In a Decision, the Court ruled in favor of the disputed shares in his private capacity as
Consortium Banks and declared that the attachment owner thereof and not as responsible officer
lien they previously acquired is valid and effective or representative of [Chemical Industries].
even though it was not annotated in the Moreover, the disputed shares constitute
corporation's stock and transfer books. merely 20% of [Chemical Industries']
outstanding capital stocks. As such, the
The Ferro Chemicals Case corporation's consent in the disposition is
Ferro Chemicals initiated several civil and not required. Neither does its conveyance
criminal cases against Chemical Industries, Antonio require any action on the part of the
Garcia, Rolando Navarro, Jaime Gonzales and a corporation, except the ministerial duty of
certain Atty. Virgilio Gesmundo before different recording the same in its stock and transfer
courts and judicial bodies. book.
Considering the nature of the
On 3 December 1996, Ferro Chemicals filed transaction involved, whatever obligation
an action for damages before the RTC of Makati, [Antonio Garcia] incurred, it was incurred in
seeking for the recovery of the amount of the shares his personal capacity. . . ." 63
that was lost by Chemphil Export to the Consortium
Banks in the Second Consortium Case. Even if Antonio Garcia was selling his shares
of stocks in the Chemical Industries, the corporation
RTC- in favor of Ferro Chemicals and found Chemical was neither made a party to the contract nor did the
Industries, Antonio Garcia, Jaime Gonzales and sale redound to its benefit. As a matter of fact, the
Rolando Navarro solidarily liable for the total amount subject of the purchase agreement was not limited
12 of P269,355,537.41. RTC also made the corporation CORPORATION
to Antonio Garcia's LAW CASE
shares in Chemical DIGESTS |but
Industries, 1
accountable for the acts of its Corporate Secretary, likewise included his shares in Vision Insurance
Rolando Navarro, which were carried out to the Consultants, Inc., Alabang Country Club, Inc. and
damage and prejudice of Ferro Chemicals. Manila Polo Club, Inc. 64 His shares of capital stocks
with Chemical Industries became the subject of
CA- affirmed with modifications; being a corporation controversy because of the allegation that he
with a personality separate and distinct from its intentionally withheld the information from Ferro
officers and members, Chemical Industries could not Chemicals that these shares were subject of the
be held liable for the acts of the latter. Consortium Banks' claim. Notably, the purported
misrepresentation was not alleged to have been
Issue: authorized or abetted by the corporation. It was a
WON the corporation can be held liable for the fraud purely personal act of the seller desirous to dispose
and breach of contract perpetrated by Garcia? conveniently his shares in the corporation. It bears
underscoring that a corporation has a personality
Ruling: NO. separate and distinct from that of each stockholder.
A corporation, upon coming to existence, is It has the right of continuity or perpetual
invested by law with a personality separate and succession, 65 that is, its existence is not
distinct from those of the persons composing it. extinguished by the transfer of ownership of its
Ownership by a single or a small group of shares of capital stock from one shareholder to
stockholders of nearly all of the capital stock of the another. ISHCcT
corporation is not, without more, sufficient to
disregard the fiction of separate corporate Needless to say, the imputation of liability
personality. Thus, obligations incurred by corporate Chemical Industries for the acts of its corporate
officers, acting as corporate agents, are not theirs, officer and the consequent shedding of corporate
but direct accountabilities of the corporation they shroud cannot rest on flimsy grounds. The
represent. Solidary liability on the part of corporate application of the doctrine of piercing the veil of
officers may at times attach, but only under corporate fiction is frowned upon. 66 It can only be
exceptional circumstances, such as when they act done if it has been clearly established that the
with malice or in bad faith. Also, in appropriate separate and distinct personality of the corporation
cases, the veil of corporate fiction shall be is used to justify a wrong, protect fraud, or
disregarded when the separate juridical personality perpetrate a deception. 67 As explained by the Court
of a corporation is abused or used to commit fraud
 inPhilippine National Bank v. Andrada Electric & was stipulated in the said MOA that the new
Engineering Company: 68 corporation would have an authorized capital stock of
"Hence, any application of the P4,000,000.00, of which P1,000,000.00 was subscribed
doctrine of piercing the corporate veil should and paid equally by the Martinez Group and the De
be done with caution. A court should be Castro Group.
mindful of the milieu where it is to be
applied. It must be certain that the corporate As it turned out, the supposedly new corporation
fiction was misused to such an extent that contemplated was Silvericon. De Castro was appointed
injustice, fraud, or crime was committed the President and majority stockholder of Silvericon
against another, in disregard of its rights. The while Bienvenida and Martinez were named as
wrongdoing must be clearly and convincingly stockholders and incorporators thereof, each owning
established; it cannot be presumed. one (1) share of subscribed capital stock.
Otherwise, an injustice that was never
unintended may result from an erroneous Martinez was designated as Chairman of the new
application." corporation to whom De Castro, as President and Chief
Operating Officer, would directly report. De Castro was
In the case at bar, Ferro Chemicals failed to tasked to manage the day to day operations of the new
adduce satisfactory evidence to prove that Chemical corporation based on policies, procedures and
Industries' separate corporate personality was being strategies set by Martinez.
used by Antonio Garcia to protect fraud or
perpetrate deception warranting the shedding of its During De Castro's tenure as Chief Operating Officer of
veil and the consequent imposition of solidary the newly created Silvericon, he recruited forty (40)
liability upon it. sales and marketing personnel. One of them was
petitioner Ma. Girlie F. Platon (Platon)  who occupied
5. EDWARD C. DE CASTRO AND MA. GIRLIE F. the position of Executive Property Consultant. 
PLATON, Petitioners, v. COURT OF APPEALS,
NATIONAL LABOR RELATIONS COMMISSION, Thereafter, the Sales and Marketing Agreement
SILVERICON, INC., AND/OR NUVOLAND PHILS., INC., (SMA),  dated February 26, 2008, was purportedly
AND/OR RAUL MARTINEZ, RAMON BIENVENIDA, AND executed by Nuvoland and Silvericon, stipulating that
THE BOARD OF DIRECTORS OF all payments made for the condominium projects of
NUVOLAND, Respondents. Nuvoland were to be given directly  to it. Clients
13 G.R.No. 204261, October 05, 2016 secured by the CORPORATION LAW CASE
sales and marketing DIGESTS
personnel |1
would
issue checks payable to Nuvoland  while the cash
FACTS: payments, as the case may be, were deposited to
Nuvoland, a corporation formed primarily "to own, Nuvoland's account.  Meanwhile, the corresponding
use, improve, develop, subdivide, sell, exchange, lease sales commission of the sales personnel were issued to
and hold for investment or otherwise, real estate of all them by Nuvoland, with Martinez signing on behalf of
kinds, including buildings, houses, apartments and the said company.
other structures," was registered with the Securities
and Exchange Commission (SEC)  on August 9, In a Letter, dated December 12, 2008 and signed by
2006. Respondent Ramon Bienvenida (Bienvenida)  was Bienvenida, Nuvoland terminated the SMA on the
the principal stockholder and member of the Board of ground that Silvericon personnel committed an
Directors while Raul Martinez (Martinez)  was its unauthorized walkout and abandonment of the Nuvo
President. City Showroom for two (2) days. In the same letter,
Nuvoland demanded that Silvericon make a full
Silvericon, on the other hand, was registered with the accounting of all its uses of the marketing advances
SEC on December 19, 2006. Its Articles: of from Nuvoland. It, however, assured that all sales
Incorporation described it as a "corporation organized commissions earned by Silvericon personnel would be
'to own, use, improve, develop, subdivide, sell, released as per existing policy.
exchange, lease and hold for investment or otherwise,
real estate of all kinds, including buildings, houses, After the issuance of the said termination letter, De
apartments and other structures.” Castro and all the sales and marketing personnel of
Sometime in 2007, Martinez recruited petitioner Silvericon were barred from entering the office
Edward de Castro (De Castro), a sales and marketing premises. Nuvoland, eventually, was able to secure the
professional in the field of real estate, to handle its settlement of all sales and marketing personnel's
sales and marketing operations, including the hiring commissions and wages with the exception of those of
and supervision of the sales and marketing personnel. De Castro and Platon.
De Castro was made to sign a Memorandum of
Agreement (MOA),  denominated as Shareholders Aggrieved, De Castro and Platon filed a complaint for
Agreement, wherein Martinez proposed to create a illegal dismissal before the LA, demanding the payment
new corporation, through which the latter's of their unpaid wages, commissions and other benefits
compensation, benefits and commissions, including with prayer for the payment of moral and exemplary
those of other sales personnel, would be coursed. It damages and attorney's fees against Silvericon,
 Nuvoland, Martinez, Bienvenida, and the Board of employee relationship between the petitioners and
Directors of Nuvoland. Nuvoland, the CA deemed that the latter could not be
held liable for the claim of illegal dismissal.
Nuvoland and its directors and officers denied a direct
contractual relationship with De Castro and Platon, and The petitioners filed the petition.
contended that if there was any dispute at all, it was
merely between the complainants and Silvericon. Issue: Whether or not Silvericon was engaged in
independent contracting.
Silvericon admitted that it had employed De Castro as
President and COO. It, however, asserted the Held: No. The Court is hounded by nagging doubts in
application of Presidential Decree (P.D.)  No. 902-A to its review of the assailed decision. Several factors
the case, arguing that the claims come within the showing that Silvericon was not  an independent
purview of corporate affairs and management, thus, contractor.
falling within the jurisdiction of the regular courts.
The conclusion that Silvericon was a mere labor-only
Ruling of the Labor Arbiter contractor and a business conduit of Nuvoland
The LA handed down his decision in favor of De Castro warrants the piercing of its corporate veil. At this point,
and Platon. He concluded that Silvericon was a mere it is apt to restate the Court's ruling in Sarona v.
labor-only contractor and, therefore, a mere agent of National Labor Relations Commission:
Nuvoland.  The doctrine of piercing the corporate veil applies only
in three (3) basic areas, namely: 1) defeat of public
Nuvoland was adjudged as the direct employer of De convenience as when the corporate fiction is used as a
Castro and Platon and, thus, liable to pay their money vehicle for the evasion of an existing obligation; 2)
claims as a consequence of their illegal dismissal. fraud cases or when the corporate entity is used to
According to the LA, the ground relied upon for the justify a wrong, protect fraud, or defend a crime; or 3)
termination of the employment of De Castro and alter ego cases, where a corporation merely a farce
Platon - abandonment of the Nuvo City Showroom - since it is a mere alter ego or business conduit of a
was not at all proven. Mere suspicion that De Castro person, or where the corporation is so organized and
instigated the walkout did not discharge the burden of controlled and its affairs are so conducted as to make it
proof which heavily rested on the employer. Without merely an instrumentality, agency, conduit or adjunct
an unequivocal showing that an employee deliberately of another corporation.
14 and unjustifiably refused his employment sans  any CORPORATION LAW CASE DIGESTS | 1
intention to return to work, abandonment as a cause As ruled in Prince Transport, Inc. v. Garcia, it is the act
for dismissal could not stand. Worse, procedural due of hiding behind the separate and distinct personalities
process could not be said to have been observed of juridical entities to perpetuate fraud, commit illegal
through the expediency of a letter in contravention to acts and evade one's obligations, that the equitable
Article 277, paragraph 2 of the Labor Code. piercing doctrine was formulated to address and
prevent: Thus:
Nuvoland, Bienvenida and Martinez interposed an x x x A settled formulation of the doctrine of piercing
appeal before the NLRC, arguing that the LA gravely the corporate veil is that when two business
abused his discretion. enterprises are owned, conducted and controlled by
the same parties, both law and equity will, when
Ruling of the NLRC necessary to protect the rights of third parties,
The NLRC reversed  the LA decision, finding that disregard the legal fiction that these two entities are
Silvericon was an independent contractor, thus, the distinct and treat them as identical or as one and the
direct employer of De Castro and Platon.  This being same, xxx However, petitioners' attempt to isolate
the case, the NLRC ruled that no employer-employee themselves from and hide behind the supposed
relationship existed between Nuvoland, on one hand, separate and distinct personality of Lubas so as to
and De Castro and Platon, on the other. There was no evade their liabilities is precisely what the classical
evidence showing that Nuvoland hired, paid wages, doctrine of piercing the veil of corporate entity seeks
dismissed or controlled De Castro and Platon, or to prevent and remedy.
anyone of Silvericon's employees. Resultantly,
Martinez and Bienvenida could not be held liable for Consequently, the piercing of the corporate veil
they merely acted as officers of Nuvoland. disregards the seemingly separate and distinct
De Castro and Platon assailed the decision of the NLRC personalities of Nuvoland and Silvericon with the aim
via a petition for certiorari  under Rule 65  with the CA. of preventing the anomalous situation abhorred by
  prevailing labor laws. That Silvericon was independent
Ruling of the CA from Nuvoland's personality could not be given legal
The CA affirmed the findings of the NLRC, pointing out imprimatur as the same would pave the way for
that what was terminated was the SMA. As such, the Nuvoland's complete exoneration from liability after a
employment of the forty (40) personnel hired by circumvention of the law. Besides, a contrary
Silvericon, as well as the petitioners' employment, was proposition would leave the petitioners without any
not affected. Considering that there was no employer- recourse notwithstanding the unquestioned fact that
 Nuvoland eventually assented to the settlement of all Guillermo filed a Motion for Reconsideration/To Set
the sales and marketing personnel's commissions and Aside the Order of the labor arbiter. His contentions
wages before the LA, except the petitioners. The were a) officers cannot be included as judgement
respondents in their comment were strikingly silent on obligor in a labor case for the first time only after the
this point. decision of the Labor Arbiter had become final and
executory b) in piercing the veil of RCVPI, he was
In the interest of justice and equity, that veil of allegedly discriminated against when he alone was
corporate fiction must be pierced, and Nuvoland and belatedly impleaded despite the existence of other
Silvericon be regarded as one and the same entity to officers of RCVPI; c)that the labor arbiter has no
prevent a denial of what the petitioners are entitled to. jurisdiction because the case is one of an intra-
In a situation like this, an employer-employee corporate controversy, with the complainant Uson also
relationship between the principal and the dismissed claiming to be a stockholder and director of the
employees arises by operation of law. Silvericon being corporation.
merely an agent, its employees were in fact those of
Nuvoland. Stated differently, Nuvoland was the Issues:
principal employer of the petitioners.
Whether the twin doctrines of “piercing the veil of
6. JOSE EMMANUEL GUILLERMO, P. PETITIONER, VS. corporate fiction” and personal liability of company
CRISANTO P. USON,RESPONDENT. officers in a labor cases apply.
[ G.R. No. 198967, March 07, 2016 ]  
Ruling:
Facts:
Respondent Uson was an accounting supervisor in The Petition is denied.
Royal Class Venture Phils., Inc. (RCVPI) until Dec. 20,  
2000 when he was allegedly dismissed by petitioner The rulings of this Court in A.C. Ransom,
Guillermo, the company’s president/general manager, Naguiat, and Reynoso, however, have since been
for having exposed the latter’s practice of dictating and tempered, at least in the aspects of the lifting of the
undervaluing the shares of stocks of the corporation. corporate veil and the assignment of personal liability
Thereafter he filed a complaint for illegal dismissal to directors, trustees and officers in labor cases. The
against the corporation, RCVPI. subsequent cases of McLeod v. NLRC, Spouses Santos
  v. NLRC and Carag v. NLRC, have all established, save
15 The Labor Arbiter rendered a decision in favor of Uson, CORPORATION
for certain exceptions, LAWofCASE
the primacy DIGESTS
Section 31 of |the
1
ordering respondent to reinstate him to his former Corporation Code in the matter of assigning such
position and pay his backwages, 13th month pay as liability for a corporation's debts, including judgment
well as moral damages, exemplary damages and obligations in labor cases. According to these cases, a
attorney’s fees. RCVPI did not file an appeal but corporation is still an artificial being invested by law
repeated issuances of Writs of Execution against the with a personality separate and distinct from that of its
same remained unsatisfied. stockholders and from that of other corporations to
  which it may be connected. It is not in every instance
Uson filed another Motion for Alias Writ of Execution of inability to collect from a corporation that the veil of
and to Hold Directors and Officers of Respondent corporate fiction is pierced, and the responsible
Liable for the Decision and  quoted from the sheriff’s officials are made liable. Personal liability attaches only
return: a) that at RCVPI’s address (to which the writs when, as enumerated by the said Section 31 of the
are being served) there is a new establishment named Corporation Code, there is a wilfull and knowing assent
“ Joel and Sons Corporation” which was a family to patently unlawful acts of the corporation, there is
corporation owned by the Guillermos, in which Jose gross negligence or bad faith in directing the affairs of
Emmanuel Guillermo, the President and General the corporation, or there is a conflict of interest
Manager of RCVPI, is one of the stockholders; b) that resulting in damages to the corporation. Further, in
Jose received the writ using the nickname “Joey” another labor case, Pantranco Employees Association
concealing his real identity and pretended to be the (PEA-PTGWO), et al. v. NLRC, et al., the doctrine of
brother of Jose; c) that RCVPI has already been piercing the corporate veil is held to apply only in three
dissolved. (3) basic areas, namely: ( 1) defeat of public
  convenience as when the corporate fiction is used as a
Labor Arbiter granted the motion filed by respondent vehicle for the evasion of an existing obligation; (2)
and held herein petitioner Jose Emmanuel Guillermo, fraud cases or when the corporate entity is used to
in his personal capacity jointly and severally liable with justify a wrong, protect fraud, or defend a crime; or
the corporation stating that the officers of the (3) alter ego cases, where a corporation is merely a
corporation are jointly and severally liable for the farce since it is a mere alter ego or business conduit of
obligations of the corporation (“piercing the veil of a person, or where the corporation is so organized and
corporate fiction”) to the employees even if the said controlled and its affairs are so conducted as to make it
officers were not parties to the case. merely an instrumentality, agency, conduit or adjunct
  of another corporation. In the absence of malice, bad
faith, or a specific provision of law making a corporate
 officer liable, such corporate officer cannot be made delivered 1,991 ACMs to the COMELEC. The
personally liable for corporate liabilities. Indeed, latter, for its part, made partial payments to
in Reahs Corporation v. NLRC, the conferment of MPEI in the aggregate amount of P1.05 billion.
liability on officers for a corporation's obligations to  This Court in its 2004 Decision declared the
labor is held to be an exception to the general doctrine contract null and void.6 We held that the
of separate personality of a corporation. COMELEC committed a clear violation of law
and jurisprudence, as well as a reckless
It also bears emphasis that in cases where disregard of its own bidding rules and
personal liability attaches, not even all officers are procedure.
made accountable. Rather, only the "responsible  All in all, Comelec subverted the essence of
officer," i.e., the person directly responsible for and public bidding: to give the public an
who "acted in bad faith" in committing the illegal opportunity for fair competition and a clear
dismissal or any act violative of the Labor Code, is held basis for a precise comparison of bids.
solidarily liable, in cases wherein the corporate veil is  Complaint for Damages filed by respondents
pierced. In other instances, such as cases of so-called with the RTC Makati and petitioner's Answer
corporate tort of a close corporation, it is the person with Counterclaim, with an application for a
"actively engaged" in the management of the writ of preliminary attachment, from which the
corporation who is held liable. In the absence of a instant case arose
clearly identifiable officer(s) directly responsible for the  Upon the finality of the declaration of nullity of
legal infraction, the Court considers the president of the automation contract, respondent MPEI
the corporation as such officer. filed a Complaint for Damages before the RTC
Makati, arguing that, notwithstanding the
7. Republic Of The Philippines, Petitioner, V. Mega nullification of the automation contract, the
Pacific Esolutions, Inc., Willy U. Yu, Bonnie S. Yu, COMELEC was still bound to pay the amount of
Enrique T. Tansipek, Rosita Y. Tansipek, Pedro O. Tan, P200,165,681.89. This amount represented the
Johnson W. Fong, Bernard I. Fong, And *Lauriano A. difference between the value of the ACMs and
Barrios, Respondents. the support services delivered on one hand,
June 27, 2016 G.R. No. 184666 and on the other, the payment previously
made by the COMELEC.
FACTS:  By way of a counterclaim, petitioner
 Republic Act No. 8436 authorized the demanded from respondents the return of the
16 COMELEC to use an automated election system CORPORATION LAW CASE DIGESTS | 1
payments made pursuant to the automation
for the May 1998 elections. However, the contract.26 It argued that individual
automated system failed to materialize and respondents, being the incorporators of MPEI,
votes were canvassed manually during the likewise ought to be impleaded and held
1998 and the 2001 elections. accountable for MPEI's liabilities. The creation
 For the 2004 elections, the COMELEC again of MPC was, after all, merely an ingenious
attempted to implement the automated scheme to feign eligibility to bid.
election system. For this purpose, it invited  Pursuant to Section 1(d) of Rule 57 of the Rules
bidders to apply for the procurement of of Court, petitioner prayed for the issuance of
supplies, equipment, and services. a writ of preliminary attachment against the
 Respondent MPEI, as lead company, properties of MPEI and individual respondents.
purportedly formed a joint venture - known as The application was grounded upon the
the Mega Pacific Consortium (MPC) - together fraudulent misrepresentation of respondents
with We Solv, SK C & C, ePLDT, Election.com as to their eligibility to participate in the
and Oracle. Subsequently, MPEI, on behalf of bidding for the COMELEC automation project
MPC, submitted its bid proposal to COMELEC. and the failure of the ACMs to comply with
 After due assessment, the Bids and Awards mandatory technical requirements.
Committee (BAC) recommended that the  The trial court denied the prayer for the
project be awarded to MPC. The COMELEC issuance of a writ of preliminary attachment,29
favorably acted on the recommendation and ruling that there was an absence of factual
issued Resolution No. 6074, which awarded allegations as to how the fraud was actually
the automation project to MPC. committed.
 Despite the award to MPC, the COMELEC and  The trial court further ruled that the
MPEI executed on 2 June 2003 the Automated allegations of fraud on the part of MPEI were
Counting and Canvassing Project Contract not supported by the COMELEC, the office in
(automation contract)5 for the aggregate charge of conducting the bidding for the
amount of P1,248,949,088. election automation contract. It was likewise
 MPEI agreed to supply and deliver 1,991 units held that there was no evidence that
of ACMs and such other equipment and respondents harbored a preconceived plan not
materials necessary for the computerized to comply with the obligation; neither was
electoral system in the 2004 elections. there any evidence that MPEI's corporate
Pursuant to the automation contract, MPEI fiction was used to perpetrate fraud. Thus, it
 found no sufficient basis to pierce the veil of HELD: Yes. They cannot argue violation of due process,
corporate fiction or to cause the attachment of as respondent MPEI, of which they are
the properties owned by individual incorporators/stockholders, remains vulnerable to the
respondents. piercing of its corporate veil.
 Petitioner moved to set aside the trial court's
Order denying the writ of attachment,30 but There are red flags indicating that MPEI was used to
its motion was denied. perpetrate the fraud against petitioner, thus allowing
 Aggrieved, petitioner filed an appeal with the the piercing of its corporate veil.
CA.
 The CA in its First Decision32 reversed and set Petitioner seeks the issuance of a writ of preliminary
aside the trial court's Orders and ruled that attachment over the personal assets of the individual
there was sufficient basis for the issuance of a respondents, notwithstanding the doctrine of separate
writ of attachment in favor of petitioner. juridical personality. It invokes the use of the doctrine
 The appellate court explained that the of piercing the corporate veil, to which the canon of
averments of petitioner in support of the separate juridical personality is vulnerable, as a way to
latter's application actually reflected pertinent reach the personal properties of the individual
conclusions reached by this Court in its 2004 respondents. Petitioner paints a picture of a sham
Decision. It held that the trial court erred in corporation set up by all the individual respondents for
disregarding the following findings of fact, the purpose of securing the automation contract.
which remained unaltered and unreversed: (1)
COMELEC bidding rules provided that the Veil-piercing in fraud cases requires that the legal
eligibility and capacity of a bidder may be fiction of separate juridical personality is used for
proved through financial documents including, fraudulent or wrongful ends. For reasons discussed
among others, audited financial statements for below, We see red flags of fraudulent schemes in
the last three years; (2) MPEI was incorporated public procurement, all of which were established in
only on 27 February 2003, or 11 days prior to the 2004 Decision, the totality of which strongly
the bidding itself; (3) in an attempt to disguise indicate that MPEI was a sham corporation
its ineligibility, MPEI participated in the bidding formed merely for the purpose of perpetrating a
as lead company of MPC, a putative fraudulent scheme.
consortium, and submitted the incorporation
papers and financial statements of the The red flags are as follows: (1) overly narrow
17 CORPORATION
specifications; (2) unjustified LAW CASE DIGESTS and
recommendations |1
members of the consortium; and (4) no proof
of the joint venture agreement, consortium unjustified winning bidders; (3) failure to meet the
agreement, memorandum of agreement, or terms of the contract; and (4) shell or fictitious
business plan executed among the members of company.
the purported consortium was ever submitted
to the COMELEC. Overly Narrow Specifications
 According to the CA, the foregoing were Scheme: Rigged specifications. In a competitive
glaring indicia or badges of fraud, which market for goods and services, any specifications that
entitled petitioner to the issuance of the writ. seem to be drafted in a way that favors a particular
Respondents moved for reconsideration36 of company deserve closer scrutiny. For
the First Decision of the CA. example, specifications that are too narrow can be
The CA reconsidered its First Decision37 and used to exclude other qualified bidders or justify
directed the remand of the case to the RTC improper sole source awards. Unduly vague or broad
Makati for the reception of evidence of specifications can allow an unqualified bidder to
allegations of fraud and to determine whether compete or justify fraudulent change orders after the
attachment should necessarily issue. The CA contract is awarded. Sometimes, project officials will
explained in its Amended Decision that go so far as to allow the favored bidder to draft the
respondents could not be considered to have specifications.
fostered a fraudulent intent to dishonor their
obligation, since they had delivered 1,991 units Unjustified Recommendations and Unjustified
of ACMs. Winning Bidders
Questionable evaluation and unusual bid patterns
Petitioner filed the instant Rule 45 Petition,45 arguing may emerge in the BER. After the completion of the
that the CA erred in ordering the remand of the case to evaluation process, the Bid Evaluation Committee
the trial court for the reception of evidence to should present to the implementing agency its BER,
determine the presence of fraud. which describes the results and the process by which
the BEC has evaluated the bids received. The BER may
ISSUE: include a number of indicators of bid rigging, e.g.,
WON the application of the piercing doctrine justifies questionable disqualifications, and unusual bid
the issuance of a writ of preliminary attachment over patterns.
the properties of the individual respondents.
Failure to Meet Contract Terms
 Scheme: Failure to meet contract terms. Firms may Restobar. In her Explanation,16 respondent asserted
deliberately fail to comply with contract requirements. that the charges of dishonesty was not related to the
The contractor will attempt to conceal such actions Pepsi Qonteact such that she opted not to answer said
often by falsifying or forging supporting documentation accusation. With regard to the alleged missing Pepsi
and bill for the work as if it were done in accordance drinks, she affirmed that Pepsi clarified the matter
with specifications. In many cases, the contractors already, particularly to where these soft drinks were
must bribe inspection or project personnel to accept placed or given.
the substandard goods or works, or supervision agents
are coerced to approve substandard work. However, on January 12, 2006, on the ground of loss of
trust and confidence, Leo terminated respondent
Shell or fictitious company effective January 15, 2006. Respondent thus filed an
Fictitious companies are by definition fraudulent and Amended Complaint for illegal dismissal.
may also serve as fronts for government officials. The
typical scheme involves corrupt government officials Ruling of the Executive Labor Arbiter
creating a fictitious company that will serve as a The LA decreed that petitioners and Kimwa validly
"vehicle" to secure contract awards. Often, the dismissed respondent on the ground of loss of trust
fictitious—or ghost— company will subcontract work and confidence. He pointed out that employers cannot
to lower cost and sometimes unqualified firms. The be compelled to retain the services of their employees
fictitious company may also utilize designated losers as who were guilty of acts inimical to the interests of the
subcontractors to deliver the work, thus indicating employer; and, the dismissal of an erring employee
collusion. was a measure of self-protection. Respondent
appealed the LA Decision.
Shell companies have no significant assets, staff or
operational capacity. They pose a serious red flag as a Ruling of the National Labor Relations Commission
bidder on public contracts, because they often hide the On November 28, 2008, the NLRC issued its
interests of project or government officials, concealing Resolution23 finding respondent's dismissal illegal.
a conflict of interest and opportunities for money According to the NLRC, respondent's claim that she
laundering. Also, by definition, they have no had the authority to enter the contract with Pepsi was
experience. supported by evidence, which included the Sworn
Statement of the Sales Manager of-Pepsi, and a
8. LEO'S RESTAURANT AND BAR CAFÉ Certification from concerned Pepsi Managers that
18 MOUNTAIN SUITE BUSINESS APARTELLE,LEO Y. LUA Pepsi donated CORPORATION
only 10 casesLAWofCASE DIGESTS and
softdrinks |1
AND AMELIA LUA, Petitioners, v. LAARNE1 C. additional 20 cases of Pepsi 12 oz. to the Restobar.
BENSING, Respondent. Petitioners and Kimwa moved for a reconsideration of
G.R. No. 208535, October 19, 2016 the November 28, 2008 NLRC Resolution.

Facts: On January 2, 2002, Kimwa Construction & On June 4,2009, the NLRC granted the Motion for
Development Corporation (Kimwa) employed Reconsideration. In reversing itself, the NLRC held that
respondent as liaison officer.7 Allegedly, Kimwa also respondent's functions did not include any authority to
operated Leo's Restaurant and Bar Cafe (Restobar), sign or execute contracts for and in behalf of the
and the Mountain Suite Business Apartelle (Apartelle). Restobar. It added that even assuming that Leo
Thereafter, Leo Y. Lua (Leo), the Manager of the verbally authorized her to sign the Pepsi agreement,
Restobar and the Apartelle, issued upon respondent a respondent signed the same in her name, as if she was
Memorandum requesting her to temporarily report at the Restobar's owner. Hence, appeal.
Kimwa's Main Office starting December 30, 2005. On
the same date, Leo required respondent through Ruling of the Court of Appeals
another memorandum to explain the signing of On November 27, 2012s the CA, reinstated the
contract without the former’s authority and the November 28, 2008 NLRC Resolution. 
benefits arising from the contract. In her
Explanation,11 respondent stated that on October 24, According to the CA, respondent even acted in good
2005, in the presence of Jovenal 12 Ablanque faith when she signed the contract with Pepsi on the
(Ablanque), Sales Manager of Pepsi, Leo verbally impression that sit was part of her duties and
authorized her to sign the contract with Pepsi on responsibilities. It also quoted with approval the
behalf of the Restobar. November 28, 2003 NLRC Resolution declaring that
there was no evidence that respondent abused her
Later, in a Memorandum15 dated January 3, 2006, representation privilege. Respondent, on her end,
respondent was required to answer these charges: 1) counters that although she held a position of trust and
she committed dishonesty when she charged to the confidence, there is no showing that she committed
Restobar's account 50% of the food she ordered willful breach of trust against her employer. She
therefrom without approval of its Owner or Manager; argued that she acted in good faith when she signed
2) she violated her duties when she did not inform Leo the exclusivity contract with Pepsi such that there is no
of the signing of the Pepsi contract; and, 3) she failed reason to hold that she committed any dishonest
to account for 47 soft drinks cases that Pepsi gave the
 conduct that would warrant her employer's loss of FACTS:
trust in her.
Petitioner Erson Ang Lee (petitioner), through Super
Issue: Whether or not respondent was validly Lamination, is a duly registered entity principally
dismissed on the ground of loss of trust and engaged in the business of providing lamination services
confidence. to the general public.

Held: The Court denies the Petition. Respondent Samahan ng mga Manggagawa ng Super
An employer has the right to dismiss an employee for Lamination Services (Union A) is a legitimate labor
just causes, which include willful breach of trust and organization, which is also a local chapter affiliate of the
confidence reposed on him or her by the employer. To National Federation of Labor Unions - Kilusang Mayo
temper such right to dismiss, and to reconcile it with Uno. It appears that Super Lamination is a sole
the employee's security of tenure, it is the employer proprietorship under petitioner's name, 5 while Express
who has the burden to show that the dismissal of the Lamination and Express Coat are duly incorporated
employee is for a just cause. Such determination of just entities separately registered with the Securities and
cause must also be made with fairness, in good faith, Exchange Commission (SEC). On 7 March 2008, Union A
and only after observance of due process of law. filed a Petition for Certification Election to represent all
the rank-and-file employees of Super Lamination.
Moreover, to dismiss an employee on the ground of Notably, on the same date, Express Lamination
loss of trust and confidence, two requisites must Workers' Union (Union B) also filed a Petition for
concur: (a) the concerned employee must be holding a Certification Election to represent all the rank-and-file
position of trust; and, (b) the loss of trust must be employees of Express Lamination. Also on the same
based on willful breach of trust based on clearly date, the Samahan ng mga Manggagawa ng Express
established facts. Coat Enterprises, Inc. (Union C) filed a Petition for
Certification Election to represent the rank-and-file
Loss of trust and confidence as a ground for dismissal is employees of Express Coat.
never intended for abuse by reason of its subjective
nature. It must be pursuant to a breach done willfully, Super Lamination, Express Lamination, and Express
knowingly and purposely without any valid excuse. It Coat, all represented by one counsel, separately
must rest on substantial grounds and not on mere claimed in their Comments and Motions to Dismiss that
suspicion, whims, or caprices of the employer. the petitions must be dismissed on the same ground -
19 CORPORATION LAW CASE DIGESTS | 1
lack of employer-employee relationship between these
In fine, "loss of confidence should not be simulated. It establishments and the bargaining units that Unions A,
should not be used as a subterfuge for causes which B, and C seek to represent as well as these unions'
are improper, illegal, or unjustified. Loss of confidence respective members.
may not be arbitrarily asserted in the face of
overwhelming evidence to the contrary. It must be All three Petitions for Certification Election of the
genuine, not a mere afterthought to justify earlier Unions were denied.
action taken in bad faith."
On 21 May 2008, an Order was issued by DOLE National
Indeed, there was no malice or any fraudulent intent Capital Region (NCR) Med-Arbiter Michael Angelo
on the part of respondent when she sighed the Pepsi Parado denying the respective petitions of Unions B and
contract. There is likewise no evidence that she C on the ground that there was no existing employer-
personally benefited therefrom. In fact, the Restobar employee relationship between the members of the
itself received the items donated by Pepsi, and the unions and the companies concerned. On 23 May 2008,
Restobar did not suffer any damage arising from the DOLE NCR Med-Arbiter Alma Magdaraog-Alba also
Pepsi contract. denied the petition of respondent Union A on the same
ground.
Loss of trust and confidence must stem from
dishonest, deceitful or fraudulent acts. In the absence The three unions filed their respective appeals before
of such malicious intent or fraud on the part of the Office of the DOLE Secretary, which consolidated
respondent, she committed no willful breach of trust the appeal. The unions argued that their petitions
against her employer. should have been allowed considering that the
companies involved were unorganized, and that the
employers had no concomitant right to oppose the
9. Lee vs. Samahang manggagawa ng Super Laminatins petitions. They also claimed that while the questioned
employees might have been assigned to perform work
G.R. No. 193816 at the other companies, they were all under one
management's direct control and supervision.
ERSON ANG LEE DOING BUSINESS as "SUPER
LAMINATION SERVICES," Petitioner  DOLE, through Undersecretary Romeo C. Lagman,
vs. SAMAHANG MANGGAGAWA NG SUPER rendered the assailed Decision. DOLE found that Super
LAMINATION (SMSLS-NAFLU-KMU), Respondent
 Lamination, Express Lamination, and Express Coat fundamental doctrine that the corporate fiction should
were sister companies that had a common human not be used as a subterfuge to commit injustice and
resource department responsible for hiring and circumvent labor laws.32
disciplining the employees of the three companies. The
same department was found to have also given them Here, a certification election was ordered to be held for
daily instructions on how to go about their work and all the rank-and- file employees of Super Lamination,
where to report for work. It also found that the three Express Lamination, and Express Coat.1âwphi1 The
companies involved constantly rotated their workers, three companies were supposedly distinct entities
and that the latter's identification cards had only one based on the fact that Super Lamination is a sole
signatory. proprietorship while Express Lamination and Express
Coat were separately registered with the SEC. 33 The
To DOLE, these circumstances showed that the directive was therefore, in effect, a piercing of the
companies were engaged in a work-pooling scheme, in separate juridical personalities of the corporations
light of which they might be considered as one and the involved. We find the piercing to be proper and in
same entity for the purpose of determining the accordance with the law as will be discussed below.
appropriate bargaining unit in a certification election.
The following established facts show that Super
ISSUE: Whether the application of the doctrine of Lamination, Express Lamination, and Express Coat are
piercing the corporate veil is warranted. under the control and management of the same party -
petitioner Ang Lee. In effect, the employees of these
RULING: three companies have petitioner as their common
employer, as shown by the following facts:
An application of the doctrine of piercing the corporate
veil is warranted. 1. Super Lamination, Express Lamination, and
Express Coat were engaged in the same
Petitioner argues that separate corporations cannot be business of providing lamination services to the
treated as a single bargaining unit even if their public as admitted by petitioner in his petition. 34
businesses are related,23 as these companies are
indubitably distinct entities with separate juridical 2. The three establishments operated and hired
personalities.24 Hence, the employees of one employees through a common human resource
corporation cannot be allowed to vote in the department as found by DOLE in a clarificatory
20 CORPORATION LAW CASE DIGESTS | 1
certification election of another corporation, lest the hearing.
abovementioned rule be violated.25
3. The workers of all three companies were
Petitioner's argument, while correct, is a general rule. constantly rotated and periodically assigned to
This Court has time and again disregarded separate Super Lamination or Express Lamination or
juridical personalities under the doctrine of piercing the Express Coat to perform the same or similar
corporate veil. It has done so in cases where a separate tasks.
legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, among other 4. DOLE found and the CA affirmed that the
grounds.26 In any of these situations, the law will regard common human resource department imposed
it as an association of persons or, in case of two disciplinary sanctions and directed the daily
corporations, merge them into one. performance of all the members of Unions A,
B, and C.
A settled formulation of the doctrine of piercing the
corporate veil is that when two business enterprises are 5. Super Lamination included in its payroll and
owned, conducted, and controlled by the same parties, SSS registration not just its own employees,
both law and equity will, when necessary to protect the but also the supposed employees of Express
rights of third parties, disregard the legal fiction that Lamination and Express Coat.
these two entities are distinct and treat them as
identical or as one and the same. 6. Petitioner admitted that Super Lamination
had issued and signed the identification cards of
This formulation has been applied by this Court to cases employees who were actually working for
in which the laborer has been put in a disadvantageous Express Lamination and Express Coat.
position as a result of the separate juridical
personalities of the employers involved. Pursuant to 7. Super Lamination, Express Lamination, and
veil-piercing, we have held two corporations jointly Express Coat were represented by the same
and severally liable for an employee's back wages. We counsel who interposed the same arguments
also considered a corporation and its separately- in their motions before the Med-Arbiters and
incorporated branches as one and the same for DOLE.
purposes of finding the corporation guilty of illegal
dismissal. These rulings were made pursuant to the
 Further, we discern from the synchronized movements before the RTC, but it was not given due course because
of petitioner and the two other companies an attempt of the probate proceedings.
to frustrate or defeat the workers' right to collectively
bargain through the shield of the corporations' separate On June 12, 2008, in its Order, 8 the RTC-Br. 9 found the
juridical personalities. We make this finding on the basis petition for probate of will filed by Remedios and
of the motions to dismiss filed by the three companies. Manuela as sufficient in form and substance and set the
While similarly alleging the absence of an employer- case for hearing.
employee relationship, they alternately referred to one
another as the employer of the members of the Consequently, Marty filed her Verified Urgent
bargaining units sought to be represented respectively Manifestation and Motion. Marty averred that until the
by the unions. This fact was affirmed by the Med- alleged will of the decedent could be probated and
Arbiters' Orders finding that indeed, the supposed admitted, Remedios and her ten (10) children had no
employees of each establishment were found to be standing to either possess or control the properties
alternately the employees of either of the two other comprising the estate of the Villasins. She prayed for
companies as well. This was precisely the reason why the probate court to:
DOLE consolidated the appeals filed by Unions A, B, and
C. 1) order an immediate inventory of all the
properties subject of the proceedings;
We hold that if we allow petitioner and the two other
companies to continue obstructing the holding of the 2) direct the tenants of the estate, namely,
election in this manner, their employees and their Mercury Drug and Chowking, located at
respective unions will never have a chance to choose Primrose Hotel, to deposit their rentals with the
their bargaining representative. We take note that all court;
three establishments were unorganized. That is, no
union therein was ever duly recognized or certified as a 3) direct Metro bank, P. Burgos Branch, to
bargaining representative.46 freeze the accounts in the name of Rosario,
Primrose Development
Therefore, it is only proper that, in order to safeguard Corporation (Primrose)  or Remedios; and
the right of the workers and Unions A, B, and C to
engage in collective bargaining, the corporate veil of 4) lock up the Primrose Hotel in order to
Express Lamination and Express Coat must be pierced. preserve the property until final disposition by the
21 CORPORATION LAW CASE DIGESTS | 1
The separate existence of Super Lamination, Express court.
Lamination, and Express Coat must be disregarded. In
effect, we affirm the lower tribunals in ruling that these On July 8, 2008, Remedios and Manuela filed their
companies must be treated as one and the same unit Comment/Opposition10 to the urgent manifestation
for purposes of holding a certification election. averring that Marty was not an adopted child of the
Villasins based on a certification issued by the Office of
10. Mayor vs. Tiu the Clerk of Court of Tacloban City, attesting that no
record of any adoption proceedings involving Marty
G.R. No. 203770 existed in their records.

MANUELA AZUCENA MAYOR, Petitioner  In her Reply,11 dated July 15, 2008, Marty cited an order
vs. EDWIN TIU and DAMIANA CHARITO MARTY, of the Court of First Instance of Leyte (CF! Leyte)  in SP
Respondents No. 1239,12 claiming that as early as March 3, 1981, the
veil of corporate entity of Primrose was pierced on the
FACTS: ground that it was a closed family corporation
controlled by Rosario after Primo's death. Thus, Marty
On May 25, 2008, Rosario Guy- alleged that "piercing" was proper in the case of
JucoVillasinCasilan (Rosario),  the widow of the late Rosario's estate because the incorporation of Primrose
Primo Villasin (Primo),  passed away and left a was founded on a fraudulent consideration, having
holographic Last Will and Testament, wherein she been done in contemplation of Primo's death.
named her sister, Remedios Tiu (Remedios),  and her
niece, Manuela Azucena Mayor (Manuela),  as In its January 14, 2009 Order, 15 the RTC-Br. 9 granted
executors. Immediately thereafter, Remedios and the motion of Marty and appointed the OIC Clerk of
Manuela filed a petition for the probate of Rosario's Court as special administrator of the Estate. The
holographic will with prayer for the issuance of letters Probate Court also ordered Mercury Drug and Chowking
testamentary (probate proceedings).  to deposit the rental income to the court and
Metrobank to freeze the bank accounts mentioned in
On May 29, 2008, respondent Damiana Charito the motion of Marty. The doctrine of piercing the
Marty (Marty)  claiming to be the adopted daughter of corporate veil was applied in the case considering that
Rosario, filed a petition for letters of administration Rosario had no other properties that comprised her
estate other than Primrose.
 On January 22, 2009, Remedios and Manuela filed their Moreover, the probate court in this case has not
Motion for Inhibition16 on the ground of their loss of acquired jurisdiction over Primrose and its properties.
trust and confidence in RTC-Br. 9 Presiding Judge Piercing the veil of corporate entity applies to
Rogelio C. Sescon (Judge Sescon)  to dispense justice. determination of liability not of jurisdiction; it is
Later, they also filed their Motion for basically applied only to determine established liability.
Reconsideration Ad Cautelam,17 dated February 3, 2009, It is not available to confer on the court a jurisdiction it
arguing that Rosario's estate consisted only of shares has not acquired, in the first place, over a party not
of stock in Primrose and not the corporation itself. impleaded in a case.59 This is so because the doctrine of
Thus, the probate court could not order the lessees of piercing the veil of corporate fiction comes to play only
the corporation to remit the rentals to the Estate's during the trial of the case after the court has already
administrator. acquired jurisdiction over the corporation. Hence,
before this doctrine can be even applied, based on the
In its October 16, 2009 Decision, 20 the CA reversed  the evidence presented, it is imperative that the court must
assailed orders of the RTC Br. 9, except as to the first have jurisdiction over the corporation. 60
appointment of a special administrator insofar as this
relates to properties specifically belonging to the Hence, a corporation not impleaded in a suit cannot be
"Estate." It held that Primrose had a personality subject to the court's process of piercing the veil of its
separate and distinct from the estate of the decedent corporate fiction. Resultantly, any proceedings taken
and that the probate court had no jurisdiction to apply against the corporation and its properties would
the doctrine of piercing the corporate veil. infringe on its right to due process.

ISSUE: Whether the doctrine of piercing the corporate In the case at bench, the probate court applied the
veil applies in the case at bar. doctrine of piercing the corporate veil ratiocinating that
Rosario had no other properties that comprise her
RULING: estate other than her shares in Primrose. Although the
probate court's intention to protect the decedent's
The doctrine of piercing the corporate veil has no shares of stock in Primrose from dissipation is laudable,
relevant application in this case. it is still an error to order the corporation's tenants to
remit their rental payments to the estate of Rosario.
Under this doctrine, the court looks at the corporation
as a mere collection of individuals or an aggregation of 11. Reyno C. Dimson vs. Gerry T. Chua
22 CORPORATION LAW CASE DIGESTS | 1
persons undertaking business as a group, disregarding
the separate juridical personality of the corporation G.R. No. 192318
unifying the group. Another formulation of this doctrine December 5, 2016
is that when two business enterprises are owned,
conducted and controlled by the same parties, both law FACTS:
and equity will, when necessary to protect the rights of The instant case filed by the petitioner, representing the
third parties, disregard the legal fiction that two other 14 complainants, against the respondent, is an
corporations are distinct entities and treat them as offshoot of the labor case entitled "Reyno Dimson, et al.
identical or as one and the same.47 The purpose behind v. SEASUMCO, MAC, United Coconut Planters Bank
piercing a corporation's identity is to remove the (UPCB), and Cotabato Sugar Central Co., Inc.
barrier between the corporation and the persons (COSUCECO)."
comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as On September 22, 2003, the said labor case for illegal
a shield for undertaking certain proscribed activities. dismissal with monetary claims was decided in favor of
the complainants. Hence, South East Asia Sugar Mill
Here, instead of holding the decedent's interest in the Corporation (SEASUMCO) and Mindanao Azucarera
corporation separately as a stockholder, the situation Corporation (MAC), as well as the members of their
was reversed. Instead, the probate court ordered the board of directors, were ordered to pay jointly and
lessees of the corporation to remit rentals to the severally the sum of Three Million Eight Hundred
estate's administrator without taking note of the fact Twenty-Seven Thousand Four Hundred Seventy Pesos
that the decedent was not the absolute owner of and Fifty-One Centavos (P3,827,470.51).
Primrose but only an owner of shares thereof. Mere
ownership by a single stockholder or by another The LA's decision became final and executory but the
corporation of all or nearly all of the capital stocks of a judgment remained unsatisfied. Consequently, the
corporation is not of itself a sufficient reason for petitioner filed an Ex-parte Motion for the issuance of
disregarding the fiction of separate corporate an amended alias writ of execution asking for the
personalities. Moreover, to disregard the separate inclusion of the board of directors arid corporate
juridical personality of a corporation, the wrongdoing officers of SEASUMCO and MAC to hold them liable for
cannot be presumed, but must be clearly and satisfaction of the said decision. In an Order dated
convincingly established. August 16, 2007, the LA granted the motion; hence, an
amended alias writ of execution was issued which now
included the respondent. Aggrieved, the respondent
 elevated the matter to the NLRC by filing a The respondent is merely one of the officers of
Memorandum of Appeal arguing that he was denied SEASUMCO and to single him out and require him to
due process. personally answer for the liabilities of SEASUMCO are
without basis. In the absence of a finding that he acted
In a Resolution dated January 11, 2008, the NLRC with malice or bad faith, it was error for the labor
dismissed the appeal for lack of merit and sustained the tribunals to hold him responsible.
findings of the LA.
The Court had repeatedly emphasized that the piercing
ISSUE: of the veil of corporate fiction is frowned upon and can
Whether the respondent can be held solidarily liable only be done if it has been clearly established that the
with the corporation, of which he was an officer and a separate and distinct personality of the corporation is
stockholder, when he was not served with summons used to justify a wrong, protect fraud, or perpetrate a
and was never impleaded as a party to the case. deception. To disregard the separate juridical
personality of a corporation, the wrongdoing must be
RULING: established clearly and convincingly. It cannot be
No, respondent, as one of SEASUMCO's corporate presumed.
officer and stockholder, should not be held solidarily
liable with the corporation for its monetary liabilities
with the petitioner. 12. People's Security, Inc. and Nestor Racho vs. Julius
S. Flores and Esteban S. Tapiru
Here, the LA pierced the veil of corporate fiction of
SEASUMCO and held the respondent, in his personal G.R. No. 211312.
capacity, jointly and severally liable with the December 5, 2016
corporation for the enforcement of the monetary
awards to the petitioner. Even assuming that the labor FACTS:
tribunals had jurisdiction over the respondent, it was Julius S. Flores and Esteban S. Tapiru (respondents)
still improper to hold him liable for SEASUMCO's were security guards previously employed by People's
obligations to its employees. Security, Inc. (PSI). The respondents were assigned at
the various facilities of Philippine Long Distance
"A corporation is a juridical entity with a legal Telephone Company (PLDT) pursuant to a security
personality separate and distinct from those acting for services agreement between PSI and PLDT.
23 and in its behalf and, in general, from the people CORPORATION LAW CASE DIGESTS | 1
comprising it. Thus, as a general rule, an officer may not On October 1, 2001, however, PSI's security services
be held liable for the corporation's labor obligations agreement with PLDT was terminated and, accordingly,
unless he acted with evident malice and/or bad faith in PSI recalled its security guards assigned to PLDT
dismissing an employee." Section 31 of the Corporation including the respondents.
Code is the governing law on personal liability of officers
for the debts of the corporation. To hold a director or On October 8, 2001, the respondents, together with
officer personally liable for corporate obligations, two several other security guards employed by PSI, filed a
requisites must concur: complaint for illegal dismissal with the National Labor
Relations Commission (NLRC) against PLDT and PSI,
( 1) it must be alleged in the complaint that the director claiming that they are PLDT employees.
or officer assented to patently unlawful acts of the
corporation or that the officer was guilty of gross Thereafter, PSI assigned the respondents to the facilities
negligence or bad faith; and of its other clients such as the warehouse of a certain
(2) there must be proof that the officer acted in bad Marivic Yulo in Sta. Ana, Manila and Trinity College's
faith. Elementary Department in Quezon City.

Based on the records, the petitioner and the private Meanwhile, on January 13, 2003, the respondents were
respondents in the NLRC case failed to specifically allege relieved from their respective assignments pursuant to
either in their complaint or position paper that the Special Order No. 200310108 dated January 10, 2003
respondent, as an officer of SEASUMCO, willfully and issued by Col. Leonardo L. Aquino, the Operations
knowingly assented to the corporations' patently Manager of PSI. Accordingly, Flores and Tapiru, on
unlawful act of closing the corporation, or that the September 6 and 27, 2005, respectively, filed with the
respondent had been guilty of gross negligence or bad Regional Arbitration Branch of the NLRC in Quezon City
faith in directing the affairs of the corporation. In fact, a complaint for illegal dismissal and non-payment of
there was no evidence at all to show the respondent's service incentive leave pay and cash bond, with prayer
participation in the petitioner's illegal dismissal. Clearly, for separation pay, against PSI and its President Nestor
the twin requisites of allegation and proof of bad faith, Racho (Racho) (collectively, the petitioners).
necessary to hold the respondent personally liable for
the monetary awards to the petitioner, are lacking. In their position paper, the respondents claimed that,
after they were relieved from their assignment in the
warehouse in Sta. Ana, Manila on January 13, 2003,
 they repeatedly reported to PSI's office for possible FACTS: Pursuant to PD 198, petitioner Olongapo City
assignment, but the latter refused to give them any (petitioner) passed Resolution No. 161, which
assignment. On the other hand, the petitioners, in their transferred all its existing water facilities and assets
position paper, claimed that the respondents were under the Olongapo City Public Utilities Department
merely relieved from their assignment in the warehouse Waterworks Division, to the jurisdiction and ownership
in Sta. Ana, Manila and that the same was on account of of the Olongapo City Water District (OCWD).
their performance evaluation, which indicated that they
were ill-suited for the said assignment. PD 198, as amended, allows local water districts
(LWDs)which have acquired an existing water system of
On January 30, 2009, the LA rendered a Decision finding a local government unit (LGU) to enter into a contract
that the respondents were illegally from their to pay the concerned LGU. In lieu of the LGU’s share in
employment and, thus, directing the petitioners jointly the acquired water utility plant, it shall be paid by the
and severally liable to pay the former separation pay LWD an amount not exceeding three percent (3%) of
and backwages. the LWD’s gross receipts from water sales in any year. 12

ISSUE: Whether Racho is jointly and solidarily liable On October 24, 1990, petitioner filed a complaint for
with PSI for the payment of the monetary awards to the sum of money and damages against OCWD. Among
respondents. others, petitioner alleged that OCWD failed to pay its
electricity bills to petitioner and remit its payment
RULING: under the contract to pay, pursuant to OCWD’s
acquisition of petitioner’s water system. In its
No. A corporation has a personality separate and complaint, petitioner prayed for the following reliefs:
distinct from its directors, officers, or owners.
Nevertheless, in exceptional cases, courts find it proper In the interim, OCWD entered into a Joint Venture
to breach this corporate personality in order to make Agreement16 (JVA) with Subic Bay Metropolitan
directors, officers, or owners solidarily liable for the Authority (SBMA), Biwater International Limited
companies' acts. Thus, under Section 31 of the (Biwater), and D.M. Consunji, Inc. (DMCI) on November
Corporation Code of the Philippines, "[d]irectors or 24, 1996. Pursuant to this agreement, Subic Water– a
trustees who willfully and knowingly vote for or assent new corporate entity – was incorporated, withthe
to patently unlawful acts of the corporation or who are following equity participation from its shareholders:
guilty of gross negligence or bad faith in directing the
24 affairs of the corporation or acquire any personal or CORPORATION LAW CASE DIGESTS | 1
SBMA 19.99% or 20%
pecuniary interest in conflict with their duty as such
directors, or trustees, shall be liable jointly and severally OCWD 9.99% or 10%
for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other Biwater 29.99% or 30%
persons."
DMCI 39.99% or 40%17
The doctrine of piercing the corporate veil applies only
when the corporate fiction is used to defeat public On November 24, 1996, Subic Water was granted the
convenience, justify wrong, protect fraud, or defend franchise to operate and to carry on the business of
crime. In the absence of malice, bad faith, or a specific providing water and sewerage services in the Subic
provision of law making a corporate officer liable, such BayFree Port Zone, as well as in Olongapo City. Hence,
corporate officer cannot be made personally liable for Subic Water took over OCWD’s water operations in
corporate liabilities. Olongapo City.19
The respondents failed to adduce any evidence to prove
that Racho, as President and General Manager of PSI, is To finally settle their money claims against each other,
hiding behind the veil of corporate fiction to defeat petitioner and OCWD entered into a compromise
public convenience, justify wrong, protect fraud, or agreement on June 4, 1997. In this agreement,
defend crime. Thus, it is only PSI who is responsible for petitioner and OCWD offset their respective claims and
the respondents' illegal dismissal. counterclaims. The compromise agreement also
contained a provision regarding the parties’ request
13. Olonggapo City vs. Subic Water and Sewerage Co., that Subic Water, Philippines, which took over the
Inc. operations of the defendant Olongapo City Water
District be made the co-maker for OCWD’s obligations.
G.R. No. 171626, August 6, 2014
 On December 15,1998, OCWD was judicially dissolved.
OLONGAPO CITY, Petitioner,  vs.
SUBIC WATER AND SEWERAGE CO., INC., Respondent. Almost four years later, on May 30, 2003, the petitioner,
through its new counsel, filed a notice of appearance
with urgent motion/manifestation and prayed again for
the issuance of a writ of execution against OCWD. A
 certain Atty. Segundo Mangohig, claiming to be OCWD’s Mr. Noli Aldip signed the compromise agreement
former counsel, filed a manifestation alleging that purely in his own capacity. Moreover, the compromise
OCWD had already been dissolved and that Subic Water agreement did not expressly provide that Subic Water
is now the former OCWD. consented to become OCWD’s co-maker. As worded,
the compromise agreement merely provided that both
Because of this assertion, Subic Water also filed a parties [also]requestSubic Water, Philippines, which
manifestation informing the trial court that as borne out took over the operations of Olongapo City Water
by the articles of incorporation and general information District be made asco-maker [for the obligations above-
sheet of Subic Water x x x defendant OCWD is not Subic cited].This request was never forwarded to Subic
Water. The manifestation also indicated that OCWD was Water’s board of directors. Even if due notification had
only a ten percent (10%) shareholder of Subic Water; been made (which does not appearin the records),
and that its 10% share was already in the process of Subic Water’s board does not appear to have given any
being transferred to petitioner pursuant to the Deed of approval tosuch request. Nodocument such as the
Assignment dated November 24, 1997. minutes of Subic Water’s board of directors’ meeting or
a secretary’s certificate, purporting to be an
ISSUE: Whether Subic Water should be held liable for authorization to Mr. Aldip to conform to the
OCWD’s corporate obligations. compromise agreement, was everpresented. In effect,
Mr. Aldip’s act of signing the compromise agreement
RULING: was outside of his authority to undertake.

NO. Subic Water is a corporation. A corporation, as a Since Mr. Aldip was never authorized and there was no
juridical entity, primarily acts through its board of showing that Subic Water’s articles of incorporation or
directors, which exercises its corporate powers. In this by-laws granted him such authority, then the
capacity, the general rule is that, in the absence of compromise agreement he signed cannot bind Subic
authority from the board of directors, no person, not Water. Subic Water cannot likewise be made a surety or
even its officers, can validly bind a corporation. Section even a guarantor for OCWD’s obligations. OCWD’s debts
23 of the Corporation Code provides: under the compromise agreement are its own
corporate obligations to petitioner.
The board of directors or trustees.– Unless otherwise
provided in this Code, the corporate powers of all OCWD and Subic Water are two separate and different
corporations formed under this Code shall be exercised, entities.
25 CORPORATION LAW CASE DIGESTS | 1
all business conducted and all property of such
corporations controlled and held by Section 23. the Petitioner practically suggests that since Subic Water
board of directors or trustees to be elected from took over OCWD’s water operations in Olongapo City, it
among the holders of stocks, or where there is no also acquired OCWD’s juridical personality, making the
stock, from among the members of the corporation, two entities one and the same.
who shall hold office for one (1) year until their
successors are elected and qualified. (28a) This is an interpretation that we cannot make or adopt
under the facts and the evidence of this case. Subic
In People’s Aircargo and Warehousing Co., Inc. v. Court Water clearly demonstrated that it was a separate
of Appeals, we held that under Section 23 of the corporate entity from OCWD. OCWD is just a ten
Corporation Code, the power and responsibility to percent (10%) shareholder of Subic Water. As a mere
decide whether a corporation can enter into a binding shareholder, OCWD’s juridical personality cannot be
contract is lodged with the board of directors, subject to equated nor confused with that ofSubic Water. It is
the articles of incorporation, by-laws, or relevant basic in corporation law that a corporation is a juridical
provisions of law. As we have clearly explained in entity vested with a legal personality separate and
another case: distinct from those acting for and in its behalf and, in
general, from the people comprising it. 65 Under this
A corporate officer or agent may represent and corporate reality, Subic Water cannot be held liable for
bind the corporation in transactions with third OCWD’s corporate obligations in the same manner that
persons to the extent that [the] authority to do OCWD cannot be held liable for the obligations incurred
so has been conferred upon him, and this by Subic Water as a separate entity. The corporate veil
includes powers which have been intentionally should not and cannot be pierced unless it is clearly
conferred, and also such powers as, in the usual established that the separate and distinct personality of
course of the particular business, are incidental the corporation was used to justify a wrong, protect
to, or may be implied from, the powers fraud, or perpetrate a deception.
intentionally conferred, powers added
bycustom and usage, as usually pertaining to In Concept Builders, Inc. v. NLRC,67 the Court
the particular officer or agent,and such enumerated the possible probative factors of identity
apparent powers as the corporation has caused which could justify the application of the doctrine of
persons dealing with the officer oragent to piercing the corporate veil. These are:
believe that ithas conferred.
 (1) Stock ownership by one or common paid by CBB to Livesey or his authorized representative
ownership of both corporations; upon the signing of the agreement; US$9,000.00 on or
before June 30, 2003; and US$9,000.00 on or before
(2) Identity of directors and officers; September 30, 2003. Further, the agreement provided
that unless and until the agreement is fully satisfied,
(3) The manner of keeping corporate books and CBB shall not: (1) sell, alienate, or otherwise dispose of
records; and all or substantially all of its assets or business; (2)
suspend, discontinue, or cease its entire, or a
(4) Methods of conducting the business. 68 substantial portion of its business operations; (3)
substantially change the nature of its business; and (4)
The burden of proving the presence of any of these declare bankruptcy or insolvency.
probative factors lies with the one alleging it.
Unfortunately, petitioner simply claimed that Subic CBB paid Livesey the initial amount of US$13,000.00,
Water took over OCWD's water operations in Olongapo but not the next two installments as the company
City. Apart from this allegation, petitioner failed to ceased operations. In reaction, Livesey moved for the
demonstrate any link to justify the construction that issuance of a writ of execution. LA Eduardo G. Magno
Subic Water and OCWD are one and the same. granted the writ,9 but it was not enforced. Livesey then
filed a motion for the issuance of an alias writ of
execution,10 alleging that in the process of serving
14. Livesey vs. Binswanger Philippines, Inc. respondents the writ, he learned "that respondents, in
a clear and willful attempt to avoid their liabilities to
G.R. No. 177493, ERIC GODFREY STANLEY complainant x x x have organized another corporation,
LIVESEY, Petitioner, vs. BINSWANGER PHILIPPINES, INC. [Binswanger] Philippines, Inc."11 He claimed that there
and KEITH ELLIOT, Respondent. was evidence showing that CBB and Binswanger
Philippines, Inc. (Binswanger) are one and the same
FACTS: In December 2001, petitioner Eric Godfrey corporation, pointing out that CBB stands for
Stanley Livesey filed a complaint for illegal dismissal Chesterton Blumenauer Binswanger. Invoking the
with money claims4against CBB Philippines Strategic doctrine of piercing the veil of corporate fiction,
Property Services, Inc. (CBB) and Paul Dwyer. CBB was a Livesey prayed that an alias writ of execution be issued
domestic corporation engaged in real estate brokerage against respondents Binswanger and Keith Elliot, CBB’s
and Dwyer was its President. former President, and now Binswanger’s President and
26 CORPORATION
Chief Executive Officer (CEO). LAW CASE DIGESTS | 1
Livesey alleged that on April 12, 2001, CBB hired him as
Director and Head of Business Space Development, with ISSUE: Whether CBB and Binswanger Philippines, Inc.
a monthly salary of US$5,000.00; shareholdings in CBB’s (Binswanger) are one and the same corporation.
offshore parent company; and other benefits. In August
2001, he was appointed as Managing Director and his RULING: YES, there is an indubitable link between CBB’s
salary was increased to US$16,000.00 a month. closure and Binswanger’s incorporation. CBB ceased to
Allegedly, despite the several deals for CBB he drew up, exist only in name
CBB failed to pay him a significant portion of his salary.
For this reason, he was compelled to resign on It has long been settled that the law vests a corporation
December 18, 2001. He claimed CBB owed him with a personality distinct and separate from its
US$23,000.00 in unpaid salaries. stockholders or members. In the same vein, a
corporation, by legal fiction and convenience, is an
CBB denied liability. It alleged that it engaged Livesey as entity shielded by a protective mantle and imbued by
a corporate officer in April 2001: he was elected Vice- law with a character alien to the persons comprising
President (with a salary of P75,000.00/month), and it.43 Nonetheless, the shield is not at all times
thereafter, he became President (at impenetrable and cannot be extended to a point
P1,200,000.00/year). It claimed that Livesey was later beyond its reason and policy. Circumstances might deny
designated as Managing Director when it became an a claim for corporate personality, under the "doctrine
extension office of its principal in Hongkong. of piercing the veil of corporate fiction."

In his decision dated September 20, 2002, LA Jaime M. Piercing the veil of corporate fiction is an equitable
Reyno found that Livesey had been illegally dismissed. doctrine developed to address situations where the
LA Reyno ordered CBB to reinstate Livesey to his former separate corporate personality of a corporation is
position as Managing Director . abused or used for wrongful purposes. Under the
doctrine, the corporate existence may be disregarded
Thereafter, the parties entered into a compromise where the entity is formed or used for non-legitimate
agreement7 which LA Reyno approved in an order dated purposes, such as to evade a just and due obligation, or
November 6, 2002.8 Under the agreement, Livesey was to justify a wrong, to shield or perpetrate fraud or to
to receive US$31,000.00 in full satisfaction of LA carry out similar or inequitable considerations, other
Reyno’s decision, broken down into US$13,000.00 to be unjustifiable aims or intentions,45 in which case, the
fiction will be disregarded and the individuals
 composing it and the two corporations will be treated x-----------------------x
as identical46
G.R. No. 201537
In the present case, we see an indubitable link between
CBB’s closure and Binswanger’s incorporation. CBB PACIFIC REHOUSE CORPORATION, PACIFIC CONCORDE
ceased to exist only in name; it re-emerged in the CORPORATION, MIZPAH HOLDINGS, INC., FORUM
person of Binswanger for an urgent purpose HOLDINGS CORPORATION and EAST ASIA OIL
COMPANY, INC., Petitioners, 
— to avoid payment by CBB of the last two vs.
installments of its monetary obligation to EXPORT AND INDUSTRY BANK, INC., Respondent.
Livesey, as well as its other financial liabilities.
Freed of CBB’s liabilities, especially that owing FACTS:
to Livesey, Binswanger can continue, as it did
continue, CBB’s real estate brokerage business. A complaint was instituted with the Makati City
Regional Trial Court (RTC), Branch 66, against EIB
Livesey’s evidence, whose existence the respondents Securities Inc. (E–Securities) for unauthorized sale of
never denied, converged to show this continuity of 32,180,000 DMCI shares of Pacific Rehouse Corporation,
business operations from CBB to Binswanger. It was not
Pacific Concorde Corporation, Mizpah Holdings, Inc.,
just coincidence that Binswanger is engaged in the same
line of business CBB embarked on: Forum Holdings Corporation, and East Asia Oil
Company, Inc.
(1) it even holds office in the very same building
and on the very same floor where CBB once stood; In its October 18, 2005 Resolution, the RTC rendered
judgment on the pleadings, directing the E–Securities to
(2) CBB’s key officers, Elliot, no less, and Catral return to the petitioners 32,180,000 DMCI shares, as of
moved over to Binswanger, performing the judicial demand.
tasks they were doing at CBB;
On the other hand, petitioners are directed to
(3) notwithstanding CBB’s closure, Binswanger’s reimburse the defendant the amount of
Web Editor (Young), in an e-mail [P]10,942,200.00, representing the buy back price of the
correspondence, supplied the information that 60,790,000 KPPCORPORATION
shares of stocks at CASE
[P]0.18 per share.
27 LAW DIGESTS |1
Binswanger is "now known" as either CBB
The Resolution was ultimately affirmed by the Supreme
(Chesterton Blumenauer Binswanger or as
Chesterton Petty, Ltd., in the Philippines; Court and attained finality.

When the Writ of Execution was returned unsatisfied,

(4) the use of Binswanger of CBB’s
paraphernalia (receiving stamp) in connection petitioners moved for the issuance of an alias writ of
with a labor case where Binswanger was execution to hold Export and Industry Bank, Inc. liable
summoned by the authorities, although Elliot for the judgment obligation as E–Securities is “a wholly–
claimed that he bought the item with his own owned controlled and dominated subsidiary of Export
money; and and Industry Bank, Inc., and is[,] thus[,] a mere alter ego
and business conduit of the latter. E–Securities opposed
(5) Binswanger’s takeover of CBB’s project with
the motion[,] arguing that it has a corporate personality
the PNB.
that is separate and distinct from the respondent.
While the ostensible reason for Binswanger’s
The RTC eventually concluded that E–Securities is a
establishment is to continue CBB’s business operations
in the Philippines, which by itself is not illegal, the close mere business conduit or alter ego of petitioner, the
proximity between CBB’s disestablishment and dominant parent corporation, which justifies piercing of
Binswanger’s coming into existence points to an the veil of corporate fiction, and issued an alias writ of
unstated but urgent consideration which, as we earlier summons directing defendant EIB Securities, Inc.,
noted, was to evade CBB’s unfulfilled financial and/or Export and Industry Bank, Inc., to fully comply
obligation to Livesey under the compromise agreement. therewith. It ratiocinated that being one and the same
entity in the eyes of the law, the service of summons
15. Pacific Rehouse Corporation vs. CA
upon EIB Securities, Inc. (E–Securities) has bestowed
G.R. No. 199687 jurisdiction over both the parent and wholly–owned
subsidiary.
PACIFIC REHOUSE CORPORATION, Petitioners, 
vs.
COURT OF APPEALS and EXPORT AND INDUSTRY
BANK, INC., Respondents.
 Export and Industry Bank, Inc. (Export Bank) filed before positive legal duty, or dishonest and unjust act
the Court of Appeals a petition for certiorari with prayer in contravention of plaintiff’s legal right; and
for the issuance of a temporary restraining order
 The aforesaid control and breach of duty must
(TRO) seeking the nullification of the RTC Order.
[have] proximately caused the injury or unjust
The Court of Appeals reversed the RTC Order and loss complained of.
explained that the alter ego theory cannot be sustained
because ownership of a subsidiary by the parent The absence of any one of these elements prevents
‘piercing the corporate veil’ in applying the
company is not enough justification to pierce the veil of
corporate fiction. There must be proof, apart from mere ‘instrumentality’ or ‘alter ego’ doctrine, the courts are
concerned with reality and not form, with how the
ownership, that Export Bank exploited or misused the
corporate fiction of E–Securities. The existence of corporation operated and the individual defendant’s
relationship to that operation. Hence, all three elements
interlocking incorporators, directors and officers
between the two corporations is not a conclusive should concur for the alter ego doctrine to be
applicable.
indication that they are one and the same. The records
also do not show that Export Bank has complete control In this case, the alleged control exercised by Export
over the business policies, affairs and/or transactions of Bank upon its subsidiary E–Securities, by itself, does not
E–Securities. It was solely E–Securities that contracted mean that the controlled corporation is a mere
the obligation in furtherance of its legitimate corporate instrumentality or a business conduit of the mother
purpose; thus, any fall out must be confined within its company. Even control over the financial and
limited liability. operational concerns of a subsidiary company does not
by itself call for disregarding its corporate fiction. There
must be a perpetuation of fraud behind the control or
ISSUE: Whether E–Securities is a mere business conduit at least a fraudulent or illegal purpose behind the
or alter ego of petitioner, the dominant parent control in order to justify piercing the veil of corporate
corporation, which justifies piercing of the veil of fiction. Such fraudulent intent is lacking in this case.
corporate fiction.
28 Ownership by Export Bank of aLAW
CORPORATION greatCASE
majority or all
DIGESTS | 1of
RULING: stocks of E-Securities and the existence of interlocking
directorates may serve as badges of control, but
NO. The Alter Ego Doctrine is not applicable. ownership of another corporation, per se, without proof
of actuality of the other conditions are insufficient to
An alter ego exists where one corporation is so establish an alter ego relationship or connection
organized and controlled and its affairs are conducted between the two corporations, which will justify the
so that it is, in fact, a mere instrumentality or adjunct of setting aside of the cover of corporate fiction. The Court
the other. The control necessary to invoke the alter ego has declared that "mere ownership by a single
doctrine is not majority or even complete stock control stockholder or by another corporation of all or nearly
but such domination of finances, policies and practices all of the capital stock of a corporation is not of itself
that the controlled corporation has, so to speak, no sufficient ground for disregarding the separate
separate mind, will or existence of its own, and is but a corporate personality." The Court has likewise ruled
conduit for its principal. that the "existence of interlocking directors, corporate
The Court has laid down a three–pronged control test officers and shareholders is not enough justification to
to establish when the alter ego doctrine should be pierce the veil of corporate fiction in the absence of
operative: fraud or other public policy considerations."

 Control, not mere majority or complete stock While the courts have been granted the colossal
control, but complete domination, not only of authority to wield the sword which pierces through the
finances but of policy and business practice in veil of corporate fiction, concomitant to the exercise of
this power, is the responsibility to uphold the doctrine
respect to the transaction attacked so that the
of separate entity, when rightly so; as it has for so long
corporate entity as to this transaction had at encouraged businessmen to enter into economic
the time no separate mind, will or existence of endeavors fraught with risks and where only a few
its own; dared to venture.

 Such control must have been used by the Hence, any application of the doctrine of piercing the
defendant to commit fraud or wrong, to corporate veil should be done with caution. A court
perpetuate the violation of a statutory or other should be mindful of the milieu where it is to be
 applied. It must be certain that the corporate fiction voluntarily submit to the court’s jurisdiction or when
was misused to such an extent that injustice, fraud, or there is no valid service of summons, ‘any judgment of
crime was committed against another, in disregard of its the court which has no jurisdiction over the person of
rights. The wrongdoing must be clearly and convincingly the defendant is null and void.’" 51 "The defendant must
established; it cannot be presumed. Otherwise, an be properly apprised of a pending action against him
injustice that was never unintended may result from an and assured of the opportunity to present his defenses
erroneous application. to the suit. Proper service of summons is used to
protect one’s right to due process."
ISSUE: May the RTC enforce the alias writ of execution
against Export Bank? 16. WPM International Trading, Inc. vs. Labayen

RULING: G.R. No. 182770               September 17, 2014

The question posed before us is not novel. WPM INTERNATIONAL TRADING, INC. and WARLITO P.
MANLAPAZ, Petitioners, vs. FE CORAZON
The Court already ruled in Kukan International LABAYEN, Respondent.
Corporation v. Reyes that compliance with the
recognized modes of acquisition of jurisdiction cannot FACTS: The respondent, Fe Corazon Labayen, is the
be dispensed with even in piercing the veil of corporate owner of H.B.O. Systems Consultants, a management
fiction, to wit: and consultant firm.

The principle of piercing the veil of corporate fiction, The petitioner, WPM International Trading, Inc. (WPM),
and the resulting treatment of two related corporations is a domestic corporation engaged in the restaurant
as one and the same juridical person with respect to a business, while Warlito P. Manlapaz (Manlapaz) is its
given transaction, is basically applied only to determine president.
established liability; it is not available to confer on the
court a jurisdiction it has not acquired, in the first place, WPM entered into a management agreement with the
over a party not impleaded in a case. Elsewise put, a respondent, by virtue of which the respondent was
corporation not impleaded in a suit cannot be subject authorized to operate, manage and rehabilitate
to the court’s process of piercing the veil of its Quickbite, a restaurant owned and operated by WPM.
corporate fiction. In that situation, the court has not As part of herCORPORATION
tasks, the respondent
29 LAW CASE looked
DIGESTSfor
| 1a
acquired jurisdiction over the corporation and, hence, contractor who would renovate the two existing
any proceedings taken against that corporation and its Quickbite outlets in Divisoria, Manila and Lepanto St.,
property would infringe on its right to due process. University Belt, Manila.
Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much: Pursuant to the agreement, the respondent engaged
the services of CLN Engineering Services (CLN) to
"23. Piercing the veil of corporate entity applies to renovate Quickbite-Divisoria at the cost of ₱432,876.02.
determination of liability not of jurisdiction. x x x
On June 13, 1990, Quickbite-Divisoria’s renovation was
This is so because the doctrine of piercing the veil of finally completed, and its possession was delivered to
corporate fiction comes to play only during the trial of the respondent. However, out of the ₱432,876.02
the case after the court has already acquired renovation cost, only the amount of ₱320,000.00 was
jurisdiction over the corporation. Hence, before this paid to CLN, leaving a balance of ₱112,876.02.
doctrine can be applied, based on the evidence
presented, it is imperative that the court must first have Complaint for Sum of Money (Civil Case No. Q-90-
jurisdiction over the corporation. x x x" 50 (Citations 7013)
omitted)
CLN filed a complaint for sum of money and damages
From the preceding, it is therefore correct to say that before the RTC against the respondent and Manlapaz,
the court must first and foremost acquire jurisdiction which was docketed as Civil Case No. Q-90-7013. CLN
over the parties; and only then would the parties be later amended the complaint to exclude Manlapaz as
allowed to present evidence for and/or against piercing defendant. The respondent was declared in default for
the veil of corporate fiction. If the court has no her failure to file a responsive pleading.
jurisdiction over the corporation, it follows that the
court has no business in piercing its veil of corporate The RTC, in its January 28, 1991 decision, found the
fiction because such action offends the corporation’s respondent liable to pay CLN actual damages inthe
right to due process. amount of ₱112,876.02 with 12% interest per annum
from June 18,1990 (the date of first demand) and 20%
"Jurisdiction over the defendant is acquired either upon of the amount recoverable as attorney’s fees.
a valid service of summons or the defendant’s voluntary
appearance in court. When the defendant does not Complaint for Damages (Civil Case No. Q-92-13446)
 Thereafter, the respondent instituted a complaint for director, officer or employee of a corporation is
damages against the petitioners, WPM and Manlapaz. generally not held personally liable for obligations
The respondent alleged that in Civil Case No. Q-90- incurred by the corporation; 10 it is only in exceptional
7013, she was adjudged liable for a contract that she circumstances that solidary liability will attach to them.
entered into for and in behalf of the petitioners, to
which she should be entitled to reimbursement; that Incidentally, the doctrine of piercing the corporate veil
her participation in the management agreement was applies only in three (3) basic instances, namely:
limited only to introducing Manlapaz to Engineer
Carmelo Neri (Neri), CLN’s general manager; that it was a) when the separate and distinct corporate
actually Manlapaz and Neri who agreed on the terms personality defeats public convenience, as
and conditions of the agreement; that when the when the corporate fiction is used as a vehicle
complaint for damages was filed against her, she was for the evasion of an existing obligation;
abroad; and that she did not know of the case until she
returned to the Philippines and received a copy of the b) in fraud cases, or when the corporate entity
decision of the RTC. is used to justify a wrong, protect a fraud, or defend a
crime; or
RTC held that the respondent is entitled to indemnity
from Manlapaz. The RTC found that based on the c) is used in alter ego cases, i.e., where a
records, there is a clear indication that WPM is a mere corporation is essentially a farce, since it is a
instrumentality or business conduit of Manlapaz and as mere alter ego or business conduit of a person,
such, WPM and Manlapaz are considered one and the or where the corporation is so organized and
same. The RTC also found that Manlapaz had complete controlled and its affairs so conducted as to
control over WPM considering that he is its chairman, make it merely aninstrumentality, agency,
president and treasurer at the same time. conduit or adjunct of another corporation.

The CA applied the principle of piercing the veil of Piercing the corporate veil based on the alter ego
corporate fiction and agreed with the RTC that theory requires the concurrence of three elements,
Manlapaz cannot evade his liability by simply invoking namely:
WPM’s separate and distinct personality.
(1) Control, not mere majority or complete
ISSUES: stock control, but complete domination, not
30 CORPORATION LAW CASE DIGESTS | 1
only of finances but of policy and business
(1) Whether WPM is a mere instrumentality, alter-ego, practice in respect to the transaction attacked
and business conduit of Manlapaz; (attendant so that the corporate entity as to this
circumstances do not establish that WPM is a mere transaction had at the time no separate mind,
alter ego of Manlapaz ) and will or existence of its own;

(2) Whether Manlapaz is jointly and severally liable with (2) Such control must have beenused by the
WPM to the respondent for reimbursement, damages defendant to commit fraud or wrong, to
and interest. (only WPM is liable to indemnify the perpetuate the violation of a statutory or other
respondent.) positive legal duty, or dishonest and unjust act
in contravention of plaintiff’s legal right; and
RULING:
(3) The aforesaid control and breach of duty
We note, at the outset, that the question of whether a must have proximately caused the injury or
corporation is a mere instrumentality or alter-ego of unjust loss complained of.
another is purely one of fact. 5 This is also true with
respect to the question of whether the totality of the The absence of any ofthese elements prevents piercing
evidence adduced by the respondent warrants the the corporate veil.
application of the piercing the veil of corporate fiction
doctrine.6 In the present case, the attendant circumstances do not
establish that WPM is a mere alter ego of Manlapaz.
The application of the principle of piercing the veil of
corporate fiction is unwarranted in the present case. Aside from the fact that Manlapaz was the principal
stockholder of WPM, records do not show that WPM
The rule is settled that a corporation has a personality was organized and controlled, and its affairs conducted
separate and distinct from the persons acting for and in in a manner that made it merely an instrumentality,
its behalf and, in general, from the people comprising agency, conduit or adjunct ofManlapaz. As held in
it.9 Following this principle, the obligations incurred by Martinez v. Court of Appeals, the mere ownership by a
the corporate officers, or other persons acting as singlestockholder of even all or nearly all of the capital
corporate agents, are the direct accountabilities ofthe stocks ofa corporation is not by itself a sufficient ground
corporation they represent, and not theirs. Thus, a to disregard the separate corporate personality. To
 disregard the separate juridical personality of a Finally, we emphasize that the piercing of the veil of
corporation, the wrongdoing must be clearly and corporate fiction is frowned upon and thus, must be
convincingly established. done with caution. It can only be done if it has been
clearly established that the separate and distinct
Likewise, the records of the case do not support the personality of the corporation is used to justify a wrong,
lower courts’ finding that Manlapaz had control or protect fraud, or perpetrate a deception. The court
domination over WPM or its finances. That Manlapaz must be certain that the corporate fiction was misused
concurrently held the positions of president, chairman to such an extent that injustice, fraud, or crime was
and treasurer, or that the Manlapaz’s residence is the committed against another, in disregard of its rights; it
registered principal office of WPM, are insufficient cannot be presumed.
considerations to prove that he had exercised
absolutecontrol over WPM. 17. MIRANT (PHILIPPINES) CORPORATION VS. CARO,
723 SCRA 465
In this connection, we stress that the control necessary
to invoke the instrumentality or alter ego rule is not FACTS: Respondent filed a complaint for illegal dismissal
majority or even complete stock control but such and money claims for 13 and 14 month pay, bonuses
domination of finances, policies and practices that the and other benefits, as well as the payment of moral and
controlled corporation has, so to speak, no separate
exemplary damages and attorney's fees.  On January 3,
mind, will or existence of its own, and is but a conduit
1994, respondent was hired by petitioner corporation
for its principal. The control must be shown to have
been exercised at the time the acts complained of took as its Logistics Officer and was assigned at petitioner
place. Moreover, the control and breach of duty must corporation's corporate office in Pasay City. At the time
proximately cause the injury or unjust loss for which the of the filing of the complaint, respondent was already a
complaint is made. Supervisor at the Logistics and Purchasing Department
with a monthly salary of P39,815.00.
Here, the respondent failed to prove that Manlapaz,
acting as president, had absolute control over
WPM. Even granting that he exercised a certain degree On November 3, 2004, petitioner corporation
of control over the finances, policies and practices of conducted a random drug test where respondent was
WPM, in view of his position as president, chairman and randomly chosen among its employees who would be
treasurer of the corporation, such control does not tested for illegal drug use through an Intracompany
31 CORPORATION LAW CASE DIGESTS | 1
necessarily warrant piercing the veil of corporate fiction Correspondence.  Respondent was duly notified that he
since there was not a single proof that WPM was was scheduled to be tested after lunch on that day.  His
formed to defraud CLN or the respondent, or that
receipt of the notice was evidenced by his signature on
Manlapaz was guilty of bad faith or fraud.
the correspondence. Respondent avers that at around
On the contrary, the evidence establishes that CLN and 11:30 a.m. of the same day, he received a phone call
the respondent knew and acted on the knowledge that from his wife's colleague who informed him that a
they were dealing with WPM for the renovation of the bombing incident occurred near his wife's work station
latter’s restaurant, and not with Manlapaz. That WPM in Tel Aviv, Israel where his wife was then working as a
later reneged on its monetary obligation to CLN, caregiver.  Respondent attached to his Position Paper a
resulting to the filing of a civil case for sum of money
Press Release of the Department of Foreign Affairs (DFA)
against the respondent, does not automatically indicate
fraud, in the absence of any proof to support it. in Manila to prove the occurrence of the bombing
incident and a letter from the colleague of his wife who
This Court also observed that the CA failed to allegedly gave him a phone call from Tel Aviv.
demonstrate how the separate and distinct personality
of WPM was used by Manlapaz to defeat the Respondent claims that after the said phone call, he
respondent’s right for reimbursement. Neither was proceeded to the Israeli Embassy to confirm the news
there any showing that WPM attempted to avoid
on the alleged bombing incident. Respondent further
liability or had no property against which to proceed.
claims that before he left the office on the day of the
Since no harm could be said to have been proximately random drug test, he first informed the secretary of his
caused by Manlapaz for which the latter could be held Department, Irene Torres (Torres), at around 12:30 p.m.
solidarily liable with WPM, and considering that there that he will give preferential attention to the emergency
was no proof that WPM had insufficient funds, there phone call that he just received. He also told Torres that
was no sufficient justification for the RTC and the CA to he would be back at the office as soon as he has
have ruled that Manlapaz should be held jointly and
resolved his predicament. Respondent recounts that he
severally liable to the respondent for the amount she
paid to CLN. Hence, only WPM is liable to indemnify the tried to contact his wife by phone but he could not
respondent. reach her. He then had to go to the Israeli Embassy to
confirm the bombing incident. However, he was told by
 Eveth Salvador (Salvador), a lobby attendant at the manner, the doctrine of corporate fiction dictates that
Israeli Embassy, that he could not be allowed entry due only petitioner corporation should be held liable for the
to security reasons. illegal dismissal of respondent.

On that same day, at around 6:15 p.m., respondent RE: Drug test issue
returned to petitioner corporation's office. When he
There was illegal dismissal in the case at bar. While the
was finally able to charge his cellphone at the office, he
received a text message from Tina Cecilia (Cecilia), a adoption and enforcement by petitioner corporation of
its Anti-Drugs Policy is recognized as a valid exercise of
member of the Drug Watch Committee that conducted
the drug test, informing him to participate in the said its management prerogative as an employer, such
exercise is not absolute and unbridled. Managerial
drug test. He immediately called up Cecilia to explain
the reasons for his failure to submit himself to the prerogatives are subject to limitations provided by law,
collective bargaining agreements, and the general
random drug test that day. He also proposed that he
would submit to a drug test the following day at his own principles of fair play and justice. In the exercise of its
management prerogative, an employer must therefore
expense. Respondent never heard from Cecilia again.
On November 8, 2004, respondent received a Show ensure that the policies, rules and regulations on work-
related activities of the employees must always be fair
Cause Notice from petitioner corporation through Jaime
Dulot (Dulot), his immediate supervisor, requiring him and reasonable and the corresponding penalties, when
prescribed, commensurate to the offense involved and
to explain in writing why he should not be charged with
"unjustified refusal to submit to random drug testing."  to the degree of the infraction. The Anti-Drugs Policy of
Mirant fell short of these requirements.
Respondent submitted his written explanation on
November 11, 2004.  The policy of random drug testing was not clear on
what constitutes “unjustified refusal” when the
On January 13, 2005, petitioner corporation's
subject drug policy prescribed that an employee’s
Investigating Panel issued an Investigating Report “unjustified refusal” to submit to a random drug test
finding respondent guilty of "unjustified refusal to shall be punishable by the penalty of termination for
submit to random drug testing" and recommended a the first offense. Lastly, the penalty of termination
penalty of four working weeks suspension without pay, imposed by petitioner corporation upon respondent
32 CORPORATION
fell short of being LAW
reasonable as CASE DIGESTS
company policies|and
1
instead of termination, due to the presence of
regulations are generally valid and binding between
mitigating circumstances. In the same Report, the
the employer and the employee unless shown to be
Investigating Panel also recommended that petitioner grossly oppressive or contrary to law as in the case at
corporation should review its policy on random drug bar.
testing, especially of the ambiguities cast by the term
"unjustified refusal." On January 19, 2005, petitioner As to the other issue relentlessly being raised by
corporation's Asst. Vice President for Material petitioner corporation that respondent’s petition for
Management Department, George K. Lamela, Jr. certiorari before the CA should have been considered
moot as respondent had already previously executed a
(Lamela), recommended  that respondent be
quitclaim discharging petitioner corporation from all his
terminated from employment instead of merely being monetary claims is not meritorious. Quitclaims executed
suspended. Lamela argued that even if respondent did by laborers are ineffective to bar claims for the full
not outrightly refuse to take the random drug test, he measure of their legal rights, especially in this case
avoided the same. Lamela averred that "avoidance" was where the evidence on record shows that the amount
synonymous with "refusal." stated in the quitclaim exactly corresponds to the
amount claimed as unpaid wages by respondent under
ISSUE: Is Bautista (president of the corporation) also Annex A of his Reply filed with the Labor Arbiter. Prima
held personally liable along with the petitioner facie, this creates a false impression that respondent’s
claims have already been settled by petitioner
(corporation) as duly alleged by the respondent?
corporation – discharging the latter from all of
RULING: No. A corporation has a personality separate respondent’s monetary claims. In truth and in fact,
however, the amount paid under the subject quitclaim
and distinct from its officers and board of directors who
represented the salaries of respondent that remained
may only be held personally liable for damages if it is unpaid at the time of his termination – not the amounts
proven that they acted with malice or bad faith in the being claimed in the case at bar.
dismissal of an employee. Absent any evidence on
record that petitioner Bautista acted maliciously or in
bad faith in effecting the termination of respondent, 18. COMMISSIONER OF CUSTOMS VS. OILING
plus the apparent lack of allegation in the pleadings of INTERNATIONAL CORPORATION, 728 SCRA 469
respondent that petitioner Bautista acted in such
 On September 15, 1966, Union Refinery Corporation willingness to pay only P94,216,580.10, of which the
(URC) was established under the Corporation Code of initial amount of P28,264,974.00 would be taken from
the Philippines. In the course of its business the collectibles of Oilink from the National Power
undertakings, particularly in the period from 1991 to Corporation, and the balance to be paid in monthly
1994, URC imported oil products into the country. installments over a period of three years to be secured
On January 11, 1996, Oilink was incorporated for the with corresponding post-dated checks and its future
primary purpose of manufacturing, importing, available tax credits. On July 2, 1999, Commissioner Tan
exporting, buying, selling or dealing in oil and gas, and made a final demand for the total liability of
their refinements and by-products at wholesale and P138,060,200.49 upon URC and Oilink.
retail of petroleum.  URC and Oilink had interlocking
directors when Oilink started its business. In applying On July 8, 1999, Co requested from Commissioner Tan a
for and in expediting the transfer of the operator's complete finding of the facts and law in support of the
name for the Customs Bonded Warehouse then assessment made in the latter's July 2, 1999 final
operated by URC, Esther Magleo, the Vice-President and demand. Also on July 8, 1999, Oilink formally protested
General Manager of URC, sent a letter dated January 15, the assessment on the ground that it was not the party
1996 to manifest that URC and Oilink had the same liable for the assessed deficiency taxes.
Board of Directors and that Oilink was 100% owned by
URC. On July 12, 1999, after receiving the July 8, 1999 letter
from Co, Commissioner Tan communicated in writing
On March 4, 1998, Oscar Brillo, the District Collector of the detailed computation of the tax liability, stressing
the Port of Manila, formally demanded that URC pay that the Bureau of Customs (BoC) would not issue any
the taxes and duties on its oil imports that had arrived clearance to Oilink unless the amount of
between January 6, 1991 and November 7, 1995 at the P138,060,200.49 demanded as Oilink's tax liability be
Port of Lucanin in Mariveles, Bataan. On April 16, 1998, first paid, and a performance bond be posted by
Brillo made another demand letter to URC for the URC/Oilink to secure the payment of any adjustments
payment of the reduced sum of P289,287,486.60 for the that would  result from the BIR's review of the liabilities
Value-Added Taxes (VAT), special duties and excise for VAT, excise tax, special duties, penalties, etc. Thus,
33 taxes for the years 1991-1995. On April 23, 1998, URC, CORPORATION LAWtoCASE
on July 30, 1999, Oilink appealed the DIGESTS |1
CTA, seeking
through its counsel, responded to the demands by the nullification of the assessment for having been
seeking the landed computations of the assessments, issued without authority and with grave abuse of
and challenged the inconsistencies of the demands. discretion tantamount to lack of jurisdiction because
On November 25, 1998, then Customs Commissioner the Government was thereby shifting the imposition
Pedro C. Mendoza formally directed that URC pay the from URC to Oilink.
amount of  P119,223,541.71 representing URC's special ISSUE: WHETHER OR NOT THERE WAS A VALID GROUND
duties, VAT, and Excise Taxes that it had failed to pay at OF PIERCING THE VEIL OF CORPORATE FICTION.
the time of the release of its 17 oil shipments that had
arrived in the Sub-port of Mariveles from January 1, RULING: NO. A corporation, upon coming into
1991 to September 7, 1995. On December 21, 1998, existence, is invested by law with a personality separate
Commissioner Mendoza wrote again to require URC to and distinct from those of the persons composing it as
pay deficiency taxes but in the reduced sum of well as from any other legal entity to which it may be
P99,216,580.10. On December 23, 1998, upon his related. For this reason, a stockholder is generally not
assumption of office, Customs Commissioner Nelson made to answer for the acts or liabilities of the
Tan transmitted another demand letter to URC affirming corporation, and vice versa. The separate and distinct
the assessment of P99,216,580.10 by Commissioner personality of the corporation is, however, a mere
Mendoza. fiction established by law for convenience and to
promote the ends of justice. It may not be used or
On January 18, 1999, Magleo, in behalf of URC, replied invoked for ends that subvert the policy and purpose
by letter to Commissioner Tan's affirmance by denying behind its establishment, or intended by law to which
liability, insisting instead that only P28,933,079.20 the corporation owes its being. This is true particularly
should be paid by way of compromise. On March 26, when the fiction is used to defeat public convenience,
1999, Commissioner Tan responded by rejecting to justify wrong, to protect fraud, to defend crime, to
Magleo's proposal, and directed URC to pay confuse legitimate legal or judicial issues, to perpetrate
P99,216,580.10. On May 24, 1999, Manuel Co, URC's deception or otherwise to circumvent the law. This is
President, conveyed to Commissioner Tan URC's likewise true where the corporate entity is being used
 as an alter ego, adjunct, or business conduit for the sole ASC, CAGLI, and WLI entered into an Agreement. a. ASC
benefit of the stockholders or of another corporate and CAGLI would transfer their shipping assets to WLI in
entity. In such instances, the veil of corporate entity will exchange for WLI’s shares of capital stock. WLI would
be pierced or disregarded with reference to the run their merged shipping businesses, to be known as
particular transaction involved. WG&A, Inc. It was stipulated that that all disputes in
connection with the Agreement be settled by
In Philippine National Bank v. Ritratto Group, Inc., the arbitration pursuant to the Arbitration Law (RA 876). An
Court has outlined the following circumstances that are arbitration tribunal shall be formed composed of four
useful in the determination of whether a subsidiary is a arbitrators. Each party shall appoint one arbitrator. The
mere instrumentality of the parent-corporation, viz: three appointees shall appoint the fourth arbitrator and
the latter shall act as Chairman. The award of the
1. Control, not mere majority or complete tribunal shall be binding on the parties and shall be
control, but complete domination, not only of
enforced by Cebu or Metro Manila courts. Attached to
finances but of policy and business practice in
respect to the transaction attacked so that the the Agreement was Annex SL-V, a letter from WLI
corporate entity as to this transaction had at the President to CAGLI. Confirmed WLI’s commitment to
time no separate mind, will or existence of its acquire certain spare parts and material inventories of
own; CAGLI, totaling an amount of P400M at most, pursuant
to the Agreement. Pursuant to Annex SL-V, inventories
2. Such control must have been used by the
were transferred from CAGLI to WLI, now WG&A.
defendant to commit fraud or wrong, to
perpetrate the violation of a statutory or other Assessed to have value of P514M, later adjusted to
positive legal duty, or dishonest and, unjust act P558.89M, CAGLI was paid the amount of P400M and
in contravention of plaintiff's legal rights; and WG&A shares worth P38.5M were also transferred to
CAGLI. There was still a balance so CAGLI sent WG&A
3.  The aforesaid control and breach of duty demand letters for the payment or return of excess
must proximately cause the injury or unjust loss inventories.
complained of.
The Chiongbians and the Gothongs decided to
34 leave WG&A and sell their interest
CORPORATION LAWtoCASE
the Aboitiz
DIGESTSfamily
|1
In applying the "instrumentality" or "alter ego" doctrine,
so a Share Purchase Agreement (SPA) was entered into.
the courts are concerned with reality, not form, and
Aboitiz Equity Ventures (AEV) agreed to purchase the
with how the corporation operated and the individual
shares of the Chiongbian and Gothong groups. The SPA
defendant's relationship to the operation.
provided for arbitration in Cebu Sity as the mode of
Consequently, the absence of any one of the foregoing
settling disputes arising from the SPA pursuant to the
elements disauthorizes the piercing of the corporate
Arbitration Law. The SPA also provided that the
veil.
Agreement shall be deemed terminated except Annex
Indeed, the doctrine of piercing the corporate veil has SL-V. The parties also entered into an Escrow
no application here because the Commissioner of Agreement as part of the SPA where ING Bank was to
Customs did not establish that Oilink had been set up to take custody of the shares subject of the SPA and that
avoid the payment of taxes or duties, or for purposes disputes arising from it would be settled through
that would defeat public convenience, justify wrong, arbitration. AEV became stockholder of WG&A, which
protect fraud, defend crime, confuse legitimate legal or was renamed Aboitiz Transport Shipping Corp. CAGLI
judicial issues, perpetrate deception or otherwise made demands to ATSC (the corporation) for the return
circumvent the law. It is also noteworthy that from the or payment of the excess inventories. AEV alleged that
outset the Commissioner of Customs sought to collect inventories worth P120.04M were returned evidenced
the deficiency taxes and duties from URC, and that it by delivery receipts. CAGLI continued demanding and
was only on July 2, 1999 when the Commissioner of eventually addressed its demand letters directly to AEV
Customs sent the demand letter to both URC and Oilink. (the stockholder). AEV rebuffed the demands alleging
That was revealing, because the failure of the that CAGLI already received the excess inventories, it
Commissioner of Customs to pursue the remedies was not a party to CAGLI’s claim because it had a
against Oilink from the outset manifested that its personality distinct from WLI/WG&A/ATSC and CAGLI’s
belated pursuit of Oilink was only an afterthought. claim was barred by prescription. In a reply-letter, CAGLI
claimed that it was unaware of the return of the excess
19. ABOITIZ EQUITY VENTURES VS. CHIONGBIAN, 729 inventories and asked for copies of the delivery
SCRA 580 receipts.
FACTS:
 In letters written for AEV by its counsels, it was noted retained a personality separate and distinct from
that the excess inventories were delivered to GT Ferry WLI/WG&A/ATSC. The SPA did not render AEV
Warehouse. Attached were delivery receipts of the personally liable for the obligations of the corporation
whose stocks it held.
return, the supposed unreturned inventories were only
P119.89M but P120.04M was returned so CAGLI was The obligation animating CAGLI's desire to arbitrate is
actually the one liable to return the difference. Not rooted in Annex SL-V. Annex SL-V is a contract entirely
satisfied, CAGLI filed two applications for arbitration different from the SPA. It created distinct obligations for
before RTC-Cebu. distinct parties. AEV was never a party to Annex SL-V.
Rather than pertaining to AEV, Annex SL-V pertained to
ISSUE: WHETHER OR NOT AEV as ATSC’s stockholder a different entity: WLI (renamed WG&A then renamed
subject to the obligation of the latter. ATSC). AEV is, thus, not bound by Annex SL-V.

RULING: NO. The Aboitiz group (via ASC) and the On one hand, Annex SL-V does not stipulate that
Gothong group (via CAGLI) became stockholders of disputes arising from it are to be settled via arbitration.
WLI/WG&A, along with the Chiongbian group (which On the other hand, the SPA requires arbitration as the
mode for settling disputes relating to it and recognizes
initially controlled WLI). This continued until, pursuant
the subsistence of the obligations under Annex SL-V.
to the SPA, the Gothong group and the Chiongbian
But as a separate contract, the mere mention of Annex
group transferred their shares to AEV. With the SPA, SL-V in the SPA does not suffice to place Annex SL-V
AEV became a stockholder of WLI/WG&A, which was under the ambit of the SPA or to render it subject to the
subsequently renamed ATSC. Nonetheless, AEV's status SPA's terms, such as the requirement to arbitrate.
as ATSC's stockholder does not subject it to ATSC's
obligations. 20. PALM AVENUE HOLDING VS SANDIGANBAYAN 5TH
DIVISION, 732 SCRA 156
It is basic that a corporation has a personality separate
and distinct from that of its individual stockholders. FACTS: Through a writ of sequestration dated October
Thus, a stockholder does not automatically assume the 27, 1986, the Presidential Commission on Good
liabilities of the corporation of which he is a Government (PCGG) sequestered all the assets,
stockholder. properties, records, and documents of the Palm
Companies. Said sequestered assets included
35 CORPORATION
16,237,339 Benguet LAW CASE
Corporation DIGESTS
shares |1
of stock,
AEV's status as ATSC's stockholder is, in and of itself,
insufficient to make AEV liable for ATSC's obligations. registered in the name of the Palm Companies. The
Moreover, the SPA does not contain any stipulation PCGG had relied on a letter from the Palm Companies’
which makes AEV assume ATSC's obligations. It is true Attorney-in-Fact, Jose S. Sandejas, specifically
that Section 6.8 of the SPA stipulates that the rights and identifying Benjamin “Kokoy” Romualdez, a known
obligations arising from Annex SL-V are not terminated. crony of former President Ferdinand E. Marcos, as the
But all that Section 6.8 does is recognize that the beneficial owner of the Benguet Corporation shares in
obligations under Annex SL-V subsist despite the the Palm Companies’ name.
termination of the January 8, 1996 Agreement. At no
point does the text of Section 6.8 support the position The Republic, represented by the PCGG, filed a
that AEV steps into the shoes of the obligor under complaint with the Sandiganbayan but did not initially
Annex SL-V and assumes its obligations. implead the Palm Companies as defendants. However,
the Sandiganbayan issued a Resolution dated June 16,
Neither does Section 6.5 of the SPA suffice to compel 1989 where it ordered said companies to be impleaded.
AEV to submit itself to arbitration. While it is true that The Court subsequently affirmed this order to implead
Section 6.5 mandates arbitration as the mode for in G.R. No. 906675 on November 5, 1991. On
settling disputes between the parties to the SPA, September 22, 2006, the Palm Companies filed a
Section 6.5 does not indiscriminately cover any and all Motion to Release Sequestered Funds with the
disputes which may arise between the parties to the Sandiganbayan. In a Resolution dated January 18, 2007,
SPA. Rather, Section 6.5 is limited to "dispute[s] arising the Sandiganbayan granted said motion and ordered
between the parties relating to this Agreement [i.e., the the release of the sequestered funds for the purchase of
SPA]." To belabor the point, the obligation which is additional shares in Benguet Corporation, and
subject of the present dispute pertains to Annex SL-V, appointed a comptroller for this purpose.
not to the SPA. That the SPA, in Section 6.8, recognizes
the subsistence of Annex SL-V is merely a factual ISSUE: Whether or not writ of sequestration issued by
recognition. It does not create new obligations and does the government against the assets and properties of
not alter or modify the obligations spelled out in Annex Palm Avenue Holding Co., Inc. and Palm Avenue Realty
SL-V. and Development Corporation valid.

AEV was drawn into the present controversy on account RULING: The aforesaid provision mandates the Republic
of its having entered into the SPA. This SPA made AEV a to file the corresponding judicial action or proceedings
stockholder of WLI/WG&A/ATSC. Even then, AEV within a six-month period (from its ratification on
 February 2, 1987) in order to maintain sequestration, Constitution, the corresponding judicial action or
non-compliance with which would result in the proceeding shall be filed within six months from its
automatic lifting of the sequestration order.  The Court's ratification.For those issued after such ratification, the
ruling in Presidential Commission on Good Government judicial action or proceeding shall be commenced within
v. Sandiganbayan, which remains good law, reiterates six months from the issuance thereof.
the necessity of the Republic to actually implead
corporations as defendants in the complaint, out of The sequestration or freeze order is  deemed
recognition for their distinct and separate personalities, automatically lifted  if no judicial action or proceeding is
failure to do so would necessarily be denying such commenced as herein provided.
entities their right to due process.
Here, the writ of sequestration issued against the assets 21. WPM INTERNATIONAL TRADING, INC. VS LABAYEN,
of the Palm Companies is not valid because the suit in 735 SCRA 297
Civil Case No. 0035 against Benjamin Romualdez as
shareholder in the Palm Companies is not a suit against See. Case #16 of D. Corporate Juridical Personality
the latter.  The Court has held, contrary to the assailed
Sandiganbayan Resolution in G.R. No. 173082, that 22. HERMANO OIL MANUFACTURING & SUGAR
failure to implead these corporations as defendants and CORPORATION VS. TOLL REGULATORY BOARD, 743
merely annexing a list of such corporations to the SCRA 395
complaints is a violation of their right to due process for
it would be, in effect, disregarding their distinct and FACTS:  The petitioner owned a parcel of land located at
separate personality without a hearing. Here, the Palm the right side of the Sta. Rita Exit of the NLEX. The
Companies were merely mentioned as Item Nos. 47 and parcel of land was bounded by an access fence along
48, Annex A of the Complaint, as among the the NLEX. In its letter, the petitioner requested that
corporations where defendant Romualdez owns shares respondent Toll Regulatory Board (TRB) grant an
of stocks.  Furthermore, while the writ of sequestration easement of right of way, contending that it had been
was issued on October 27, 1986, the Palm Companies totally deprived of the enjoyment and possession of its
were impleaded in the case only in 1997, or already a property by the access fence that had barred its entry
decade from the ratification of the Constitution in 1987, into and exit from the NLEX. However, the TRB denied
way beyond the prescribed period. the petitioner’s request.

The Republic in the case at bar failed to file a proper bill ISSUE: Whether or not PNCC is immune from suit?
36 of particulars which would completely clarify and CORPORATION LAW CASE DIGESTS | 1
amplify the charges against the Palm Companies.  For RULING: NO. An unincorporated government agency
said failure to comply with the graft court's order to file without any separate juridical personality of its own
the required bill of particulars that would completely enjoys immunity from suit because it is invested with an
and fully inform the Palm Companies of the charges inherent power of sovereignty. Accordingly, a claim for
against them, the amended complaint impleading said damages against the agency cannot prosper; otherwise,
companies necessarily failed to state a cause of action, the doctrine of sovereign immunity is violated.
warranting the dismissal of the case as to them.  By the However, the need to distinguish between an
dismissal of the case as against the Palm Companies, unincorporated government agency performing
there is ipso facto no more writ of sequestration to governmental function and one performing proprietary
speak of. functions has arisen. The immunity has been upheld in
favor of the former because its function is governmental
The Republic cannot simply rely on the presumption or incidental to such function; it has not been upheld in
that the PCGG has acted pursuant to law and based favor of the latter whose function was not in pursuit of
on prima facie evidence, for the same will undermine a necessary function of government but was essentially
the basic constitutional principle that public officers and a business. However, the doctrine of sovereign
employees must at all times be accountable to the immunity had no application to the PNCC. The
people.  Indeed, sequestration is an extraordinary and petitioner properly argued that the PNCC, being a
harsh remedy.  As such, it should be confined to its private business entity, was not immune from suit. The
lawful parameters and exercised with due regard to the PNCC was incorporated in 1966 under its original name
requirements of fairness, due process, and justice. of Construction Development Corporation of the
While the Court acknowledges the Government's Philippines (CDCP) for a term of fifty years pursuant to
admirable efforts to recover ill-gotten wealth allegedly the Corporation Code. In 1983, the CDCP changed its
taken by the corporations, it cannot, however, choose corporate name to the PNCC to reflect the extent of the
to turn a blind eye to the demands of the law, justice, Government's equity investment in the company, a
and fairness. situation that came about after the government
Section 26, Article XVIII of the 1987 Constitution financial institutions converted their loans into equity
provides: x x x x A sequestration or freeze order shall be following the CDCP's inability to pay the loans. Hence,
issued only upon showing of a prima facie case. The the Government owned 90.3% of the equity of the
order and the list of the sequestered or frozen PNCC, and only 9.70% of the PNCC's voting equity
properties shall forthwith be registered with the proper remained under private ownership. Although the
court.  For orders issued before the ratification of this majority or controlling shares of the PNCC belonged to
 the Government, the PNCC was essentially a private and resumed the business operations of the defunct
corporation due to its having been created in MMIC by organizing NMIC.7 DBP and PNB owned 57%
accordance with the Corporation Code, the general and 43% of the shares of NMIC, respectively, except for
corporation statute. More specifically, the PNCC was an five qualifying shares. As of September 1984, the
acquired asset corporation under Administrative Order members of the Board of Directors of NMIC, namely,
No. 59, and was subject to the regulation and Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo
jurisdiction of the Securities and Exchange Commission. Agulto, and Faustino Agbada, were either from DBP or
PNB.
RE: On the issue of whether the petitioner has the right
to demand access to the North Luzon Expressway Subsequently, NMIC engaged the services of Hercon,
(NLEX) by way of an easement of right of way; and as to Inc., for NMIC’s Mine Stripping and Road Construction
the limited access imposed on the petitioner’s property Program in 1985 for a total contract price of
may be considered as a compensable taking due to the P35,770,120. After computing the payments already
exercise of the power of eminent domain. made by NMIC under the program and crediting the
NMIC’s receivables from Hercon, Inc., the latter found
The putting up of the access fence on the petitioner’s that NMIC still has an unpaid balance of
property was in the valid exercise of police power, P8,370,934.74.10. Hercon, Inc. made several demands
assailable only upon proof that such putting up unduly on NMIC, including a letter of final demand dated
violated constitutional limitations like due process and August 12, 1986, and when these were not heeded, a
equal protection of the law. In Mirasol v. Department of complaint for sum of money was filed in the RTC of
Public Works and Highways, the Court has further noted Makati, Branch 136 seeking to hold petitioners NMIC,
that: A toll way is not an ordinary road. As a facility DBP, and PNB solidarily liable for the amount owing
designed to promote the fastest access to certain Hercon, Inc.
destinations, its use, operation, and maintenance
require close regulation. Public interest and safety Subsequent to the filing of the complaint, Hercon, Inc.
require the imposition of certain restrictions on toll was acquired by HRCC in a merger. Thereafter, on
ways that do not apply to ordinary roads. As a special December 8, 1986, then President Corazon C. Aquino
kind of road, it is but reasonable that not all forms of issued Proclamation No. 50 creating the APT for the
transport could use it. expeditious disposition and privatization of certain
government corporations and/or the assets thereof.
Clearly, therefore, the access fence was a reasonable Pursuant to the said Proclamation, on February 27,
37 restriction on the petitioner’s property given the 1987, DBP and CORPORATION LAWrespective
PNB executed their CASE DIGESTS | 1of
deeds
location thereof at the right side of Sta. Rita Exit of the transfer in favor of the National Government assigning,
NLEX. Although some adjacent properties were transferring and conveying certain assets and liabilities,
accorded unrestricted access to the expressway, there including their respective stakes in NMIC. In turn and on
was a valid and reasonable classification for doing so even date, the National Government transferred the
because their owners provided ancillary services to said assets and liabilities to the APT as trustee under a
motorists using the NLEX, like gasoline service stations Trust Agreement.
and food stores. A classification based on practical
convenience and common knowledge is not ISSUE: Whether or not there is sufficient ground to
unconstitutional simply because it may lack purely pierce the veil of corporate fiction of NMIC and held
theoretical or scientific uniformity. DBP and PNB solidarily liable with NMIC?

The limited access imposed on the petitioner’s property RULING: NO. From all indications, it appears that NMIC
did not partake of a compensable taking due to the is a mere adjunct, business conduit or alter ego of both
exercise of the power of eminent domain. There is no DBP and PNB. Thus, the DBP and PNB are jointly and
question that the property was not taken and devoted severally liable with NMIC for the latter’s unpaid
for public use. Instead, the property was subjected to a obligations to plaintiff. Then concluded that, "in keeping
certain restraint, i.e. the access fence, in order to secure with the concept of justice and fair play," the corporate
the general safety and welfare of the motorists using veil of NMIC should be pierced. For to treat NMIC as a
the NLEX. There being a clear and valid exercise of separate legal entity from DBP and PNB for the purpose
police power, the petitioner was certainly not entitled of securing beneficial contracts, and then using such
to any just compensation. separate entity to evade the payment of a just debt,
would be the height of injustice and iniquity. Surely that
23 & 24. PHILIPPINE NATIONAL BANK vs. HYDRO could not have been the intendment of the law with
RESOURCES CONTRACTORS CORPORATION, 693 SCRA respect to corporations.
294
The doctrine of piercing the corporate veil applies only
FACTS: Around the year 1984, petitioners DBP and PNB in three (3) basic areas, namely: 1) defeat of public
foreclosed on certain mortgages made on the convenience as when the corporate fiction is used as a
properties of Marinduque Mining and Industrial vehicle for the evasion of an existing obligation; 2) fraud
Corporation (MMIC). As a result of the foreclosure, DBP cases or when the corporate entity is used to justify a
and PNB acquired substantially all the assets of MMIC wrong, protect fraud, or defend a crime; or 3) alter ego
 cases, where a corporation is merely a farce since it is a subsidiary corporation is so organized and controlled
mere alter ego or business conduit of a person, or and its affairs are so conducted as to make it a mere
where the corporation is so organized and controlled instrumentality or agent of the parent corporation such
and its affairs are so conducted as to make it merely an that its separate existence as a distinct corporate entity
instrumentality, agency, conduit or adjunct of another will be ignored. It seeks to establish whether the
corporation. subsidiary corporation has no autonomy and the parent
corporation, though acting through the subsidiary in
To disregard the separate juridical personality of a form and appearance, "is operating the business
corporation, the wrongdoing or unjust act in directly for itself."
contravention of a plaintiff's legal rights must be clearly
and convincingly established; it cannot be presumed.  The second prong is the "fraud" test.  This test requires
Without a demonstration that any of the evils sought to that the parent corporation's conduct in using the
be prevented by the doctrine is present, it does not subsidiary corporation be unjust, fraudulent or
apply. wrongful. It examines the relationship of the plaintiff to
the corporation.  It recognizes that piercing is
Nothing in the records shows that the corporate appropriate only if the parent corporation uses the
finances, policies and practices of NMIC were subsidiary in a way that harms the plaintiff creditor.  As
dominated by DBP and PNB in such a way that NMIC such, it requires a showing of "an element of injustice or
could be considered to have no separate mind, will or fundamental unfairness."
existence of its own but a mere conduit for DBP and
PNB.  On the contrary, the evidence establishes that The third prong is the "harm" test.  This test requires
HRCC knew and acted on the knowledge that it was the plaintiff to show that the defendant's control,
dealing with NMIC, not with NMIC's stockholders.  The exerted in a fraudulent, illegal or otherwise unfair
letter proposal of Hercon, Inc., HRCC's predecessor-in- manner toward it, caused the harm suffered. A causal
interest, regarding the contract for NMIC's mine connection between the fraudulent conduct committed
stripping and road construction program was addressed through the instrumentality of the subsidiary and the
to and accepted by NMIC.[71]  The various billing injury suffered or the damage incurred by the plaintiff
reports, progress reports, statements of accounts and should be established.  The plaintiff must prove that,
communications of Hercon, Inc./HRCC regarding NMIC's unless the corporate veil is pierced, it will have been
mine stripping and road construction program in 1985 treated unjustly by the defendant's exercise of control
concerned NMIC and NMIC's officers, without any and improper use of the corporate form and, thereby,
38 indication of or reference to the control exercised by suffer damages.CORPORATION LAW CASE DIGESTS | 1
DBP and/or PNB over NMIC's affairs, policies and
practices. To summarize, piercing the corporate veil based on
the alter ego theory requires the concurrence of three
RE: Piercing the veil of corporate fiction elements: control of the corporation by the stockholder
or parent corporation, fraud or fundamental unfairness
A three-pronged test to determine the application of imposed on the plaintiff, and harm or damage caused to
the alter ego theory, which is also known as the the plaintiff by the fraudulent or unfair act of the
instrumentality theory, namely: corporation.  The absence of any of these elements
prevents piercing the corporate veil.
(1)  Control, not mere majority or complete stock
control, but complete domination, not only of finances The Court finds that none of the tests has been
but of policy and business practice in respect to the satisfactorily met in this case.
transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will The complaint against Development Bank of the
or existence of its own; Philippines, the Philippine National Bank, and the Asset
Privatization Trust, now the Privatization and
(2)  Such control must have been used by the Management Office, is DISMISSED.
defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, 25. G.R. No. 194578, February 13, 2013
or dishonest and unjust act in contravention of FORTUN vs. QUINSAYAS
plaintiff's legal right; and
FACTS: Before the Court is a petition for Contempt filed
(3)  The aforesaid control and breach of duty must by Atty. Philip Sigfrid A. Fortun (petitioner) against Atty.
have proximately caused the injury or unjust loss Prima Jesusa B. Quinsayas (Atty. Quinsayas) et al.
complained of.
At the height of the gruesome killings known as the
The first prong is the "instrumentality" or "control" Maguindanao Massacre, Atty. Quinsayas, et al. filed a
test.  This test requires that the subsidiary be disbarment complaint against petitioner Atty. Fortun.
completely under the control and domination of the
parent. It examines the parent corporation's Petitioner alleged that GMA News TV internet website
relationship with the subsidiary. It inquires whether a posted an article, written by Dedace, and Inquirer.net,
 the website of PDI, published articles stating the details the program were not malicious as there was no
of the disbarment case. criminal intent to violate the confidentiality rule in
disbarment proceedings. They alleged that the program
Petitioner further alleged that PhilStar published an was a commemoration of the Maguindanao Massacre
article which also gave details of the disbarment and was not a report solely on the disbarment
allegations, and that Channel 23 aired national complaint against petitioner.
television a program where Drilon, the program’s host,
asked questions and allowed Atty. Quinsayas to discuss ISSUES:
the disbarment case against petitioner, including its 1. Whether or not Philippine Daily Inquirer, Inc. and
principal points. Inquirer Interactive, Inc. are two different
corporations with separate legal personalities – No
Petitioner alleged that Atty. Quinsayas, et al. actively 2. Whether or not SNN, a subsidiary, has an
disseminated the details of the disbarment complaint independent and separate juridical personality
against him in violation of Rule 139-B of the Rules of distinct from its parent company ABS-CBN. - Yes
Court on the confidential nature of disbarment
proceedings. He alleged that the purpose of RULING:
respondents in publishing the disbarment complaint GMA Network, Inc.
was to malign his personal and professional reputation. GMA Network’s defense is that it has no newspaper or
any publication where the article could be printed; it did
In its Comment, GMA Network alleged that it has no not broadcast the disbarment complaint in its television
newspaper or any publication where it could have station; and that the publication was already completed
printed the article. It alleged that it did not broadcast when Atty. Quinsayas distributed copies of the
the disbarment complaint on its television station. GMA disbarment complaint to the media.
Network alleged that the publication had already been
done and completed when Atty. Quinsayas distributed GMA Network did not deny that it posted the details of
copies of the disbarment complaint and thus, did not the disbarment complaint on its website. It merely said
violate the confidentiality rule. that it has no publication where the article could be
printed and that the news was not televised. Online
In her Comment, Dedace clarified that she is a field posting, however, is already publication considering
news reporter of GMA Network and not a writer of the that it was done on GMA Network’s online news
GMA News TV website. Her beat includes the Supreme website.
39 Court, the Court of Appeals, and the Department of CORPORATION LAW CASE DIGESTS | 1
Justice. She alleged that she acted in good faith and Philippine Daily Inquirer, Inc.
without malice in forwarding her news story to the PDI averred that it only shares its contents with
news desk and that she had no intention to, and could Inquirer.net through a syndication. PDI attached a
not, influence or interfere in the proceedings of the photocopy of the syndication page stating that "due to
disbarment case. syndication agreements between PDI and Inquirer.net,
some articles published in PDI may not appear in
PDI alleged in its Comment that it shares content with Inquirer.net."
the Inquirer.net website through a syndication but the
latter has its own editors and publish materials that are A visit to the website describes Inquirer.net as "the
not found on the broadsheet. It alleged that Philippine official news website of the Philippine Daily Inquirer, the
Daily Inquirer, Inc. and Inquirer Interactive, Inc. are two Philippines’ most widely circulated broadsheet, and a
different corporations, with separate legal personalities, member of the Inquirer Group of Companies." PDI was
and one may not be held responsible for the acts of the not able to fully establish that it has a separate
other. personality from Inquirer.net.

In her Comment, Ressa alleged that she was the former ABS-CBN Corporation
head of ABS-CBN’s News and Current Affairs Group and ABS-CBN alleged that SNN is its subsidiary and although
the former Managing Director of ANC. However, she they have interlocking directors, SNN has its own
was on terminal leave. Ressa alleged that she had no juridical personality separate from its parent company.
participation in the production and showing of the ABS-CBN alleged that SNN controls the line-up of shows
broadcast. of ANC.

ABS-CBN and Drilon filed a joint Comment. ABS-CBN We agree with ABS-CBN on this issue. We have ruled
alleged that ABS-CBN News Channel, commonly known that a subsidiary has an independent and separate
as ANC, is maintained and operated by Sarimanok juridical personality distinct from that of its parent
Network News (SNN) and not by ABS-CBN. SNN, which company and that any suit against the the latter does
produced the program "ANC Presents: Crying for not bind the former and vice-versa. A corporation is an
Justice: the Maguindanao Massacre," is a subsidiary of artificial being invested by law with a personality
ABS-CBN but it has its own juridical personality although separate and distinct from that of other corporations to
SNN and ABS-CBN have interlocking directors. ABS-CBN which it may be connected. Hence, SNN, not ABS-CBN,
and Drilon alleged that the presentation and hosting of should have been made respondent in this case.
 balance of the purchase price and DBP issued a Deed of
Maria Ressa Sale over the subject properties in their favor.
Respondent Ressa alleged that she was on terminal
leave when the program about the Maguindanao On January 11, 1991, the counsel of respondents To
Massacre was aired on ANC and that she had no hand in Chip, Yap and Balila sent a letter addressed to the
its production. Ressa’s defense was supported by a proprietor of Cebu Bionic, informing the latter of the
certification from the Human Resource Account Head of transfer of ownership of the subject properties. Cebu
ABS-CBN, stating that Ressa went on terminal leave Bionic was ordered to vacate the premises within thirty
beginning 30 October 2010. This was not disputed by (30) days from receipt of the letter and directed to pay
petitioner. the rentals from January 1, 1991 until the end of the
said 30-day period.
26. G.R. No. 154366, November 17, 2010
CEBU BIONIC BUILDERS SUPPLY, INC vs. DBP Shortly thereafter, the counsel of respondents To Chip,
Yap and Balila sent its final demand letter to Cebu
FACTS: Spouses Robles entered into a mortgage Bionic, warning the latter to vacate the subject
contract with DBP in order to secure a loan from the properties within seven (7) days from receipt of the
said bank in the amount of ₱500,000.00. The properties letter, otherwise, a case for ejectment with damages
mortgaged were a parcel of land situated in Cebu. Upon will be filed against it.
completion, the commercial building was named the
State Theatre Building. Despite the foregoing notice, Cebu Bionic still paid to
DBP, on March 22, 1991, the amount of ₱5,000.00 as
Rudy Robles executed a contract of lease in favor of monthly rentals on the unit of the State Theatre
petitioner Cebu Bionic Builders Supply, Inc. (Cebu Building it was occupying for period of November 1990
Bionic), a domestic corporation engaged in the to March 1991.
construction business, as well as the sale of hardware
materials. Petitioners filed against respondents DBP, To Chip, Yap
and Balila a complaint for specific performance,
Thereafter a Certificate of Time Deposit for ₱11,395.64 cancellation of deed of sale with damages, injunction
was issued in the name of Bonifacio Sia (from Cebu with a prayer for the issuance of a writ of preliminary
Bionic) and the same was allegedly remitted to DBP as injunction.
advance rental deposit.
40 Respondents argueCORPORATION LAW CASE
that the instant DIGESTS
petition should| 1be
For reasons unclear, however, no written contract of dismissed outright as the verification and certification of
lease was executed between DBP and Cebu Bionic. non-forum shopping was executed only by petitioner
Lydia Sia in her personal capacity, without the
In the meantime, subsequent to the acquisition of the participation of Cebu Bionic.
subject properties, DBP offered the same for sale along
with its other assets. Pursuant thereto, DBP published a ISSUES: Whether or not the verification (and
series of invitations to bid on such properties. certification of non-forum shopping) in the instant
petition was proper and valid despite its being signed by
On the last day for the acceptance of negotiated offers, only one of the two petitioners.
petitioners submitted through their representative, Judy
Garces, a letter-offer form, offering to purchase the RULING: Yes. Except for the powers which are expressly
subject properties for ₱1,840,000.00. Attached to the conferred on it by the Corporation Code and those that
letter-offer was a copy of the Negotiated Sale Rules and are implied by or are incidental to its existence, a
Procedures issued by DBP and a manager’s check for corporation has no powers. It exercises its powers
the amount of ₱184,000.00, representing 10% of the through its board of directors and/or its duly authorized
offered purchase price. This offer of petitioners was not officers and agents.
accepted by DBP, however, as the corresponding
deposit therefor was allegedly insufficient. Thus, its power to sue and be sued in any court is
lodged with the board of directors that exercises its
After the lapse of the above-mentioned 15-day corporate powers. Physical acts, like the signing of
acceptance period, petitioners did not submit any other documents, can be performed only by natural persons
offer/proposal to purchase the subject properties. duly authorized for the purpose by corporate by-laws or
by a specific act of the board of directors.
On December 17, 1990, respondents To Chip, Yap and
Balila presented their letter-offer to purchase the In this case, respondents To Chip, Yap and Balila
subject properties on a cash basis for ₱1,838,100.00. obviously overlooked the Secretary’s Certificate
Said offer was accompanied by a downpayment of 10% attached to the instant petition, which was executed by
of the offered purchase price, amounting to the Corporate Secretary of Cebu Bionic. Unequivocally
₱183,810.00. On even date, DBP acknowledged the stated therein was the fact that the Board of Directors
receipt of and accepted their offer. On December 28, of Cebu Bionic held a special meeting and they thereby
1990, respondents To Chip, Yap and Balila paid the
 approved a Resolution authorizing Lydia Sia to elevate members and from that of its officers who manage and
the present case to this Court in behalf of Cebu Bionic. run its affairs. The rule is that obligations incurred by
the corporation, acting through its directors, officers
27. G.R. No. 178352, June 17, 2008 and employees, are its sole liabilities. Thus, property
DELIMA vs. SUSAN MERCAIDA GOIS belonging to a corporation cannot be attached to satisfy
the debt of a stockholder and vice versa, the latter
FACTS: A case for illegal dismissal was filed by petitioner having only an indirect interest in the assets and
Virgilio S. Delima against Golden Union Aquamarine business of the former.
Corporation (Golden), Prospero Gois and herein
respondent Susan Mercaida Gois before the NLRC. Since the Decision of the Labor Arbiter directed only
Golden to pay the petitioner the sum of P115,561.05
Labor Arbiter Philip B. Montaces rendered a decision and the same was not joint and solidary obligation with
finding illegality in the dismissal of complainant Virgilio Gois, then the latter could not be held personally liable
Delima from his employment and rdering since Golden has a separate and distinct personality of
respondent Golden Union Aquamarine Corporation to its own.
pay complainant backwages and other pays.
It remains undisputed that the subject vehicle was
Golden failed to appeal the aforesaid decision; hence, it owned by Gois, hence it should not be attached to
became final and executory. A writ of execution was answer for the liabilities of the corporation. Unless they
issued and an Isuzu Jeep was attached. have exceeded their authority, corporate officers are, as
a general rule, not personally liable for their official acts,
Thereafter, respondent Gois filed an Affidavit of Third because a corporation, by legal fiction, has a personality
Party Claim claiming that the attachment of the vehicle separate and distinct from its officers, stockholders and
was irregular because said vehicle was registered in her members. No evidence was presented to show that the
name and not Golden’s; and that she was not a party to termination of the petitioner was done with malice or in
the illegal dismissal case filed by Delima against Golden. bad faith for it to hold the corporate officers, such as
Gois, solidarily liable with the corporation.
The Labor Arbiter denied respondent’s third-party claim
on grounds that respondent was named in the 28. A.M. No. P-01-1464, March 13, 2001
complaint as one of the respondents, and that BOOC vs. BANTUAS
respondent is one of the incorporators/officers of the
41 corporation. CORPORATION
FACTS: Complainant LAW CASE
(Salvador Booc) is theDIGESTS | 1of
President
five Star Marketing Corporation. Herein respondent
Gois filed an appeal before the NLRC. At the same time, Sheriff Bantuas, pursuant to a Writ of Execution in a civil
she filed a motion before the Labor Arbiter to release case, filed a Notice of Levy with the Register of Deeds,
the motor vehicle after substituting the same with a Iligan City over a parcel of land and owned by Five Star
cash bond. Marketing Corporation. Complainant alleged that
respondent sheriff proceeded to file the Notice of Levy
Meanwhile, the NLRC issued a Resolution which despite respondent sheriff’s knowledge that the
dismissed respondent’s appeal for lack of merit. Gois property is owned by the corporation which was not a
filed a petition for certiorari before the CA. party to the civil case.

Gois alleged that by denying her third-party claim, she The corporation through the complainant reiterated to
was in effect condemned to pay a judgment debt issued respondent sheriff that it was the owner of the property
against a corporation of which she is neither a president and Rufino Booc had no share or interest in the
nor a majority owner but merely a stockholder. She corporation. Hence, the corporation demanded that
further argued that her personality is separate and respondent sheriff cancel the notice of levy, otherwise
distinct from that of Golden; thus, the judgment the corporation would take the appropriate legal steps
ordering the corporation to pay the petitioner could not to protect its interest.
be satisfied out of her personal assets.
Respondent sheriff, however, did not heed the
The appellate court rendered a Decision in favor of corporations demand and scheduled the public auction.
respondent, hence, the present petition. Consequently, the corporation was compelled to file an
action for Quieting of Title with the RTC.
ISSUE: Whether or not Gois’ personality is separate and
distinct from that of Golden, thus, the vehicle principally Respondent sheriff, in his answer, said that he filed a
used in the business operations of the corporation, Notice of Levy with the Register of Deeds of Iligan City
which was registered under the name of private on the share, rights, interest and participation of Rufino
respondent who was also the corporation president, Booc in the parcel of land owned by Five Star Marketing
cannot be subject of garnishment. Corporation. Respondent sheriff claimed that Rufino
Booc is the owner of around 200 shares of stock in said
RULING: Yes. A corporation has a personality distinct corporation according to a document issued by the
and separate from its individual stockholders or Securities and Exchange Commission.
 property, had stated in the notice of levy as well as in
Respondent sheriff stressed that the levy was made on the certificate of sale that what was being levied upon
the share, rights and/or interest and participation which and sold was whatever rights, shares interest and/or
Rufino Booc, as president and stockholder, may have in participation Rufino Booc, as stockholder and president
the parcel of land owned by Five Star Marketing in the corporation, may have on the subject property,
Corporation. shows that respondent sheriffs conduct was impelled
partly by ignorance of Corporation Law and partly by
Finally, respondent sheriff averred that the corporation mere overzealousness to comply with his duties and not
is merely a dummy of Rufino Booc and his brother by bad faith or blatant disregard of the trial courts
Sheikding Booc. Respondent sheriff submitted as an order. Hence, we deem that the penalty of a fine of Five
exhibit an affidavit executed by Sheikding Booc wherein Thousand Pesos (P5,000.00) to be imposed on
the latter admitted that when Judge Felipe Javier won in respondent sheriff would suffice.
the civil case against Rufino Booc, the latter simulated a
transfer of his shares of stock in Five Star Marketing 29. G.R. No. 166405, August 6, 2008
Corporation so that the property may not be levied BAUTISTA vs. AUTO PLUS TRADERS, INC.
upon.
FACTS: Petitioner Claude P. Bautista, in his capacity as
ISSUE: Whether or not the company has a distinct and President and Presiding Officer of Cruiser Bus Lines and
separate personality from that of Rufino Booc as Transport Corporation, purchased various spare parts
stockholder of the corporation, and that the respondent from private respondent Auto Plus Traders, Inc. and
erred by levying on the property of the corporation. issued two postdated checks to cover his purchases. The
checks were subsequently dishonoured, thus, private
RULING: Yes. A careful scrutiny of the records shows respondent filed two cases for violation of BP Blg. 22.
that respondent sheriff, in filing a notice of levy on the
subject property as well as in the certificate of sale, did Petitioner now comes before us, raising the sole issue of
not fail to mention that what was being levied upon and whether the Court of Appeals erred in upholding the
sold was whatever shares, rights, interests and RTC's ruling that petitioner, as an officer of the
participation Rufino Booc, as president and stockholder corporation, is personally and civilly liable to the private
in Five Star Marketing Corporation may have on subject respondent for the value of the two checks.
property.
Petitioner asserts that BP Blg. 22 merely pertains to the
42 Respondent sheriff, however, overstepped his authority criminal liability CORPORATION LAW CASE
of the accused DIGESTS
and that |the
1
when he disregarded the distinct and separate corporation, which has a separate personality from its
personality of the corporation from that of Rufino Booc officers, is solely liable for the value of the two checks.
as stockholder of the corporation by levying on the
property of the corporation. Respondent sheriff should Private respondent counters that petitioner should be
not have made the levy based on mere conjecture that held personally liable for both checks. Private
since Rufino Booc is a stockholder and officer of the respondent alleged that petitioner issued two
corporation, then he might have an interest or share in postdated checks: a personal check in his name for the
the subject property. amount of P151,200 and a corporation check under the
account of Cruiser Bus Lines and Transport Corporation
It is settled that a corporation is clothed with a for the amount of P97,500.
personality separate and distinct from that of its
stockholders. It may not be held liable for the personal According to private respondent, petitioner, by issuing
indebtedness of its stockholders. his check to cover the obligation of the corporation,
became an accommodation party. Under Section 29 of
In the case of Del Rosario vs. Bascar, Jr., we imposed the the Negotiable Instruments Law, an accommodation
fine of P5,000.00 on respondent sheriff Bascar for party is liable on the instrument to a holder for value.
allocating unto himself the power of the court to pierce Private respondent adds that petitioner should also be
the veil of corporate entity and improvidently assuming liable for the value of the corporation check because
that since complainant Esperanza del Rosario is the instituting another civil action against the corporation
treasurer of Miradel Development Corporation, they are would result in multiplicity of suits and delay.
one and the same. In the said case we reiterated the
principle that the mere fact that one is a president of ISSUE: Whether or not Bautista, in his capacity as
the corporation does not render the property he owns President and Presiding Officer of Cruiser Bus Lines, may
or possesses the property of the corporation since the be held liable for the checks.
president, as an individual, and the corporation are
separate entities. RULING: No. A perusal of the two check return slips in
conjunction with the Current Account Statements
Based on the foregoing, respondent Sheriff Bantuas has would show that the check for P151,200 was drawn
clearly acted beyond his authority when he levied the against the current account of Claude Bautista while the
property of Five Star Marketing Corporation. The fact, check for P97,500 was drawn against the current
however, that respondent sheriff, in levying said account of Cruiser Bus Lines and Transport Corporation.
 originally intended as a recreation hall but was
Nonetheless, we find the appellate court in error for converted for the residential use of Guillermo; and that
affirming the decision of the RTC holding petitioner Guillermo's possession over the house and lot was only
liable for the value of the checks considering that upon the tolerance of the respondent corporation.
petitioner was acquitted of the crime charged and that
the debts are clearly corporate debts for which only In both cases, the respondent corporation alleged that
Cruiser Bus Lines and Transport Corporation should be the petitioners never paid rentals for the use of the
held liable. buildings and the lots and that they ignored the demand
letters for them to vacate the buildings.
Juridical entities have personalities separate and distinct
from its officers and the persons composing it. In their separate answers, the petitioners alleged they
Generally, the stockholders and officers are not are heirs of Eugenia V. Roxas and therefore, co-owners
personally liable for the obligations of the corporation of the Hidden Valley Springs Resort; and as co-owners
except only when the veil of corporate fiction is being of the property, they have the right to stay within its
used as a cloak or cover for fraud or illegality, or to work premises.
injustice.
Petitioners maintain that their possession of the
These situations, however, do not exist in this case. The questioned properties must be respected in view of
evidence shows that it is Cruiser Bus Lines and their ownership of an aliquot portion of all the
Transport Corporation that has obligations to Auto Plus properties of the respondent corporation being
Traders, Inc. for tires. There is no agreement that stockholders thereof. They propose that the veil of
petitioner shall be held liable for the corporation's corporate fiction be pierced, considering the
obligations in his personal capacity. Hence, he cannot circumstances under which the respondent corporation
be held liable for the value of the two checks issued in was formed.
payment for the corporation's obligation in the total
amount of P248,700. ISSUE: Whether or not petitioner’s occupancy should be
respected as they own an aliquot part of the
Moreover, there is no showing of when petitioner corporation.
issued the check and in what capacity. In the absence of
concrete evidence it cannot just be assumed that RULING: No. Originally, the questioned properties
petitioner intended to lend his name to the corporation. belonged to Eugenia V. Roxas. After her death, the heirs
43 Hence, petitioner cannot be considered as an CORPORATION
of Eugenia V. Roxas, among them LAW
theCASE DIGESTS
petitioners |1
herein,
accommodation party. Cruiser Bus Lines and Transport decided to form a corporation — Heirs of Eugenia V.
Corporation, however, remains liable for the checks Roxas, Incorporated (private respondent herein) with
especially since there is no evidence that the debts the inherited properties as capital of the corporation.
covered by the subject checks have been paid.
The respondent is a bona fide  corporation. As such, it
30. G.R. No. 100866, July 14, 1992 has a juridical personality of its own separate from the
REBECCA BOYER-ROXAS and GUILLERMO ROXAS vs. members composing it. There is no dispute that title
CA  over the questioned land where the Hidden Valley
Springs Resort is located is registered in the name of the
FACTS: In two (2) separate complaints for recovery of corporation. The records also show that the staff house
possession filed with the RTC against petitioners being occupied by petitioner Rebecca Boyer-Roxas and
Rebecca Boyer-Roxas and Guillermo Roxas respectively, the recreation hall which was later on converted into a
respondent corporation (Heirs of Eugenia V. Roxas, Inc.) residential house occupied by petitioner Guillermo
prayed for the ejectment of the petitioners from Roxas are owned by the respondent corporation.
buildings inside the Hidden Valley Springs Resort
located at Laguna allegedly owned by the respondent Regarding properties owned by a corporation, we
corporation. stated in the case of Stockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila:
In the civil case against Rebecca, the respondent Properties registered in the name of the
corporation alleged that Rebecca is in possession of two corporation are owned by it as an entity
(2) houses, one of which is still under construction, built separate and distinct from its members. While
at the expense of the respondent corporation; and that shares of stock constitute personal property,
her occupancy on the two (2) houses was only upon the they do not represent property of the
tolerance of the respondent corporation. corporation. The corporation has property of its
own which consists chiefly of real estate. A
In the civil case against petitioner Guillermo Roxas, the share of stock only typifies an aliquot part of
respondent corporation alleged that Guillermo occupies the corporation's property, or the right to share
a house which was built at the expense of the former in its proceeds to that extent when distributed
during the time when Guillermo's father, Eriberto according to law and equity, but its holder is not
Roxas, was still living and was the general manager of the owner of any part of the capital of the
the respondent corporation; that the house was corporation. Nor is he entitled to the possession
 of any definite portion of its property or assets. contract between the petitioners and the respondent
The stockholder is not a co-owner or tenant in corporation, the corporation may elect to eject the
common of the corporate property. petitioners at any time it wishes for the benefit and
interest of the respondent corporation.
The petitioners point out that their occupancy of the
staff house which was later used as the residence of The petitioners' suggestion that the veil of the
Eriberto Roxas, husband of petitioner Rebecca Boyer- corporate fiction should be pierced is untenable. The
Roxas and the recreation hall which was converted into separate personality of the corporation may be
a residential house were with the blessings of Eufrocino disregarded only when the corporation is used "as a
Roxas, the deceased husband of Eugenia V. Roxas, who cloak or cover for fraud or illegality, or to work injustice,
was the majority and controlling stockholder of the or where necessary to achieve equity or when
corporation. necessary for the protection of the creditors." The
circumstances in the present cases do not fall under any
In his lifetime, Eufrocino Roxas together with Eriberto of the enumerated categories.
Roxas, the husband of petitioner Rebecca Boyer-Roxas,
and the father of petitioner Guillermo Roxas managed 31. G.R. No. 90580, April 8, 1991
the corporation. The Board of Directors did not object SAW vs. CA
to such an arrangement.
FACTS: A collection suit with preliminary attachment
The petitioners argue that the authority thus given by was filed by Equitable Banking Corporation against
Eufrocino Roxas for the conversion of the recreation hall Freeman, Inc. and Saw Chiao Lian, its President and
into a residential house can no longer be questioned by General Manager.
the stockholders of the private respondent and/or its
board of directors for they impliedly but no leas The petitioners moved to intervene, alleging that:
explicitly delegated such authority to said Eufrocino 1. The loan transactions between Saw Chiao Lian
Roxas. and Equitable Banking Corp. were not approved
by the stockholders representing at least 2/3 of
Again, we must emphasize that the respondent corporate capital;
corporation has a distinct personality separate from its 2. Saw Chiao Lian had no authority to contract
members. The corporation transacts its business only such loans; and
through its officers or agents. (Western Agro Industrial 3. There was collusion between the officials of
44 Corporation v. Court of Appeals, supra). Whatever Freeman,CORPORATION LAW CASE
Inc. and Equitable DIGESTS
Banking | 1in
Corp.
authority these officers or agents may have is derived securing the loans. The motion to intervene was
from the board of directors or other governing body denied, and the petitioners appealed to the
unless conferred by the charter of the corporation. Court of Appeals.

An officer's power as an agent of the corporation must Meanwhile, Equitable and Saw Chiao Lian entered into a
be sought from the statute, charter, the by-laws or in a compromise agreement which they submitted to and
delegation of authority to such officer, from the acts of was approved by the lower court. But because it was
the board of directors, formally expressed or implied not complied with, Equitable secured a writ of
from a habit or custom of doing business. execution, and two lots owned by Freeman, Inc. were
levied upon and sold at public auction to Freeman
In the present case, the record shows that Eufrocino V. Management and Development Corp.
Roxas who then controlled the management of the
corporation, being the majority stockholder, consented The CA sustained the denial of the petitioners' motion
to the petitioners' stay within the questioned for intervention, holding that "the compromise
properties. Specifically, Eufrocino Roxas gave his agreement between Freeman, Inc., through its
consent to the conversion of the recreation hall to a President, and Equitable Banking Corp. will not
residential house, now occupied by petitioner Guillermo necessarily prejudice petitioners whose rights to
Roxas. The Board of Directors did not object to the corporate assets are at most inchoate, prior to the
actions of Eufrocino Roxas. The petitioners were dissolution of Freeman, Inc. . . . And intervention under
allowed to stay within the questioned properties until Sec. 2, Rule 12 of the Revised Rules of Court is proper
August 27, 1983, when the Board of Directors approved only when one's right is actual, material, direct and
a Resolution ejecting the petitioners. immediate and not simply contingent or expectant."

We find nothing irregular in the adoption of the The petitioners are now before this Court, contending
Resolution by the Board of Directors. The petitioners' that the CA erred in holding that the petitioners cannot
stay within the questioned properties was merely by intervene in Civil Case because their rights as
tolerance of the respondent corporation in deference to stockholders of Freeman are merely inchoate and not
the wishes of Eufrocino Roxas, who during his lifetime, actual, material, direct and immediate prior to the
controlled and managed the corporation. Eufrocino dissolution of the corporation
Roxas' actions could not have bound the corporation
forever. We rule that in the absence of any existing
 The petitioners base their right to intervene for the Otherwise, if persons not parties of the action
protection of their interests as stockholders on Everett could be allowed to intervene, proceedings will
v. Asia Banking Corp. where it was held: become unnecessarily complicated, expensive
The well-known rule that shareholders cannot and interminable. And this is not the policy of
ordinarily sue in equity to redress wrongs done the law.
to the corporation, but that the action must be
brought by the Board of Directors, . . . has its Here, the interest, if it exists at all, of
exceptions. (If the corporation [were] under the petitioners-movants is indirect, contingent,
complete control of the principal defendants, .. remote, conjectural, consequential and
it is obvious that a demand upon the Board of collateral. At the very least, their interest is
Directors to institute action and prosecute the purely inchoate, or in sheer expectancy of a
same effectively would have been useless, and right in the management of the corporation and
the law does not require litigants to perform to share in the profits thereof and in the
useless acts. properties and assets thereof on dissolution,
after payment of the corporate debts and
Equitable contended that the collection suit against obligations.
Freeman, Inc, and Saw Chiao Lian is essentially in
personam and, as an action against defendants in their While a share of stock represents a
personal capacities, will not prejudice the petitioners as proportionate or aliquot interest in the property
stockholders of the corporation. The Everett case is not of the corporation, it does not vest the owner
applicable because it involved an action filed by the thereof with any legal right or title to any of the
minority stockholders where the board of directors property, his interest in the corporate property
refused to bring an action in behalf of the corporation. being equitable or beneficial in nature.
In the case at bar, it was Freeman, Inc. that was being Shareholders are in no legal sense the owners
sued by the creditor bank. of corporate property, which is owned by the
corporation as a distinct legal person.
Equitable also argues that the subject matter of the
intervention falls properly within the original and 32. G.R. No. 150197, July 28, 2005
exclusive jurisdiction of the Securities and Exchange PRUDENTIAL BANK vs. DON A. ALVIAR and GEORGIA B.
Commission under P.D. No. 902-A. ALVIAR

45 ISSUE: Whether or not petitioners as stockholders may CORPORATION

FACTS: Respondents, LAW
spouses Don A.CASE
AlviarDIGESTS |1
and Georgia
intervene in the civil case. B. Alviar, are the registered owners of a parcel of land in
San Juan, Metro Manila. They executed a deed of real
RULING: No. The Court finds that the respondent court estate mortgage in favor of petitioner Prudential Bank
committed no reversible error in sustaining the denial to secure the payment of a loan worth ₱250,000.00.
by the trial court of the petitioners' motion for
intervention. Respondents executed a promissory note PN BD#75/C-
252 covering the said loan.
In the case of Magsaysay-Labrador v. Court of
Appeals, we ruled as follows: Don Alviar executed another promissory note, PN
Viewed in the light of Section 2, Rule 12 of the BD#76/C-345 for ₱2,640,000.00, secured by D/A SFDX
Revised Rules of Court, this Court affirms the #129, signifying that the loan was secured by a "hold-
respondent court's holding that petitioners out" on the mortgagor’s foreign currency savings
herein have no legal interest in the subject account with the bank under Account No. 129, and that
matter in litigation so as to entitle them to the mortgagor’s passbook is to be surrendered to the
intervene in the proceedings below. As clearly bank until the amount secured by the "hold-out" is
stated in Section 2 of Rule 12 of the Rules of settled.
Court, to be permitted to intervene in a pending
action, the party must have a legal interest in Subsequently, respondent spouses executed for
the matter in litigation, or in the success of Donalco Trading, Inc., of which the husband and wife
either of the parties or an interest against both, were President and Chairman of the Board and Vice
or he must be so situated as to be adversely President, respectively, PN BD#76/C-430 covering
affected by a distribution or other disposition of ₱545,000.000. As provided in the note, the loan is
the property in the custody of the court or an secured by "Clean-Phase out TOD CA 3923," which
officer thereof." means that the temporary overdraft incurred by
Donalco Trading, Inc. with petitioner is to be converted
The interest which entitles a person to into an ordinary loan in compliance with a Central Bank
intervene in a suit between other parties must circular directing the discontinuance of overdrafts.
be in the matter in litigation and of such direct
and immediate character that the intervenor On 16 March 1977, petitioner wrote Donalco Trading,
will either gain or lose by the direct legal Inc., informing the latter of its approval of a straight
operation and effect of the judgment. loan of ₱545,000.00, the proceeds of which shall be
 used to liquidate the outstanding loan of ₱545,000.00 RULING: No. At this point, it is important to note that
TOD. The letter likewise mentioned that the securities one of the loans sought to be included in the "blanket
for the loan were the deed of assignment on two mortgage clause" was obtained by respondents for
promissory notes executed by Bancom Realty Donalco Trading, Inc. Indeed, PN BD#76/C-430 was
Corporation with Deed of Guarantee in favor of A.U. executed by respondents on behalf of Donalco Trading,
Valencia and Co. and the chattel mortgage on various Inc. and not in their personal capacity.
heavy and transportation equipment.
Petitioner asks the Court to pierce the veil of corporate
On 06 March 1979, respondents paid petitioner fiction and hold respondents liable even for obligations
₱2,000,000.00, to be applied to the obligations of G.B. they incurred for the corporation. The mortgage
Alviar Realty and Development, Inc. and for the release contract states that the mortgage covers "as well as
of the real estate mortgage for the ₱450,000.00 loan those that the Mortgagee may extend to the Mortgagor
covering the two (2) lots located at Vam Buren and and/or DEBTOR, including interest and expenses or any
Madison Streets, North Greenhills, San Juan, Metro other obligation owing to the Mortgagee, whether
Manila. The payment was acknowledged by petitioner direct or indirect, principal or secondary."
who accordingly released the mortgage over the two
properties. Well-settled is the rule that a corporation has a
personality separate and distinct from that of its officers
On 15 January 1980, petitioner moved for the and stockholders. Officers of a corporation are not
extrajudicial foreclosure of the mortgage on the personally liable for their acts as such officers unless it is
property covered by TCT No. 438157. Per petitioner’s shown that they have exceeded their authority.
computation, respondents had the total obligation of
₱1,608,256.68, covering the three (3) promissory notes, However, the legal fiction that a corporation has a
to wit: PN BD#75/C-252 for ₱250,000.00, PN BD#76/C- personality separate and distinct from stockholders and
345 for ₱382,680.83, and PN BD#76/C-340 for members may be disregarded if it is used as a means to
₱545,000.00, plus assessed past due interests and perpetuate fraud or an illegal act or as a vehicle for the
penalty charges. The public auction sale of the evasion of an existing obligation, the circumvention of
mortgaged property was set on 15 January 1980. statutes, or to confuse legitimate issues.

Respondents filed a complaint for damages with a PN BD#76/C-430, being an obligation of Donalco
prayer for the issuance of a writ of preliminary Trading, Inc., and not of the respondents, is not within
46 the contemplationCORPORATION LAW CASE
of the "blanket DIGESTS
mortgage |1
clause."
injunction with the RTC of Pasig, claiming that they have
paid their principal loan secured by the mortgaged Moreover, petitioner is unable to show that
property, and thus the mortgage should not be respondents are hiding behind the corporate structure
foreclosed. For its part, petitioner averred that the to evade payment of their obligations. Save for the
payment of ₱2,000,000.00 made on 6 March 1979 was notation in the promissory note that the loan was for
not a payment made by respondents, but by G.B. Alviar house construction and personal consumption, there is
Realty and Development Inc., which has a separate loan no proof showing that the loan was indeed for
with the bank secured by a separate mortgage. respondents’ personal consumption. Besides, petitioner
agreed to the terms of the promissory note.
The RTC dismissed the petition. The Court of Appeals,
however, found that respondents have not yet paid the If respondents were indeed the real parties to the loan,
₱250,000.00 since the payment of ₱2,000,000.00 petitioner, a big, well-established institution of long
adverted to by respondents was issued for the standing that it is, should have insisted that the note be
obligations of G.B. Alviar Realty and Development, Inc. made in the name of respondents themselves, and not
to Donalco Trading Inc., and that they sign the note in
Aggrieved, petitioner filed the instant petition, their personal capacity and not as officers of the
reiterating the assignment of errors raised in the Court corporation.
of Appeals as grounds herein.
33. Lanuza Jr. vs BF Corporation
Petitioner insists that respondents attempt to evade G.R. No. 174938 October 1, 2014
foreclosure by the expediency of stating that the
promissory notes were executed by them not in their Doctrine: Corporate representatives may be compelled
personal capacity but as corporate officers. It claims to submit to arbitration proceedings pursuant to a
that PN BD#76/C-430 was in fact for home construction contract entered into by the corporation they represent
and personal consumption of respondents. Thus, it if there are allegations of bad faith or malice in their
states that there is a need to pierce the veil of corporate acts representing the corporation.
fiction.
FACTS:
ISSUE: Whether or not the respondent spouses, of
President and Vice President of Donalco Trading, Inc., In 1993, BF Corporation filed a collection complaint with
are liable for the promissory note. the Regional Trial Court against Shangri-La and the
 members of its board of directors: Alfredo C. Ramos, (6) The award of such Arbitrators shall be final and
Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., binding on the parties. The decision of the Arbitrators
Maximo G. Licauco III, and Benjamin C. Ramos. shall be a condition precedent to any right of legal
action that either party may have against the other. .
BF Corporation alleged in its complaint that on
December 11, 1989 and May 30, 1991, it entered into On December 8, 1993, petitioners Lanuza and Olbes
agreements with Shangri-La wherein it undertook to filed an answer to BF Corporation's complaint, with
construct for Shangri-La a mall and a multilevel parking compulsory counterclaim against BF Corporation and
structure along EDSA. cross-claim against Shangri-La. They alleged that they
had resigned as members of Shangri-La's board of
Shangri-La had been consistent in paying BF Corporation directors as of July 15, 1991 and praying that they be
in accordance with its progress billing statements. excluded from the arbitration proceedings for being
However, by October 1991, Shangri-La started non-parties to Shangri-La's and BF Corporation's
defaulting in payment. agreement.

BF Corporation alleged that Shangri-La induced BF Petitioner further reiterated that they cannot be parties
Corporation to continue with the construction of the to Arbitration proceedings alleging that:
buildings using its own funds and credit despite Shangri-
La’s default. According to BF Corporation, Shangri-La 1. The corporation is a separate being,
misrepresented that it had funds to pay for its
obligations with BF Corporation, and the delay in 2. Based on our arbitration laws, parties who are
payment was simply a matter of delayed processing of strangers to an agreement cannot be compelled to
BF Corporation’s progress billing statements. arbitrate.

BF Corporation eventually completed the construction 3. That our arbitration laws were enacted to promote
of the buildings. Shangri-La allegedly took possession of the autonomy of parties in resolving their disputes.
the buildings while still owing BF Corporation an Compelling them to submit to arbitration is against this
outstanding balance. BF Corporation alleged that purpose and may be tantamount to stipulating for the
despite repeated demands, Shangri-La refused to pay parties.
the balance owed to it.
4. That Since the contract was executed only by BF
47 CORPORATION LAW CASE DIGESTS | 1
It also alleged that the Shangri-La’s directors were in Corporation and Shangri-La, only they should be
bad faith in directing Shangri-La’s affairs. Therefore, affected by the contract's stipulation.
they should be held jointly and severally liable with
Shangri-La for its obligations as well as for the damages In Contrast, BF Corporation argued that while
that BF Corporation incurred as a result of Shangri-La’s petitioners were not parties to the agreement, they
default. were still impleaded under Section 31 of the
Corporation Code. Section 31 makes directors’
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo solidarity liable for fraud, gross negligence, and bad
B. Colayco, Maximo G. Licauco III, and Benjamin C. faith and that Petitioners are not really third parties to
Ramos filed a motion to suspend the proceedings in the agreement because they are being sued as Shangri-
view of BF Corporation’s failure to submit its dispute to La's representatives, under Section 31 of the
arbitration, in accordance with the arbitration clause Corporation Code.
provided in its contract.
ISSUE:
35. Arbitration
Whether or not a corporation’s representatives should
(1) Provided always that in case any dispute or be made parties to the arbitration proceedings,
difference shall arise between the Owner or the Project pursuant to the arbitration clause provided in the
Manager on his behalf and the Contractor, either during contract between BF Corporation and Shangri-La.
the progress or after the completion or abandonment of
the Works as to the construction of this Contractor as to RULING: YES
any matter or thing of whatsoever nature arising
thereunder or in connection therewith xxx. A corporation's representatives are generally not bound
by the terms of the contract executed by the
the owner and the Contractor hereby agree to exert all corporation. They are not personally liable for
efforts to settle their differences or dispute amicably. obligations and liabilities incurred on or in behalf of the
Failing these efforts then such dispute or difference corporation.
shall be referred to arbitration in accordance with the
rules and procedures of the Philippine Arbitration Law. Petitioners  are  also  correct that arbitration promotes
the parties' autonomy in resolving their disputes. This
xxx xxx xxx court recognized in Heirs of Augusto Salas, Jr. v. Laperal
 Realty Corporation that an arbitration clause shall not In that case, this court recognized that persons other
apply to persons who were neither parties to the than the main party may be compelled to submit to
contract nor assignees of previous parties, thus: arbitration, e.g., assignees and heirs. Assignees and
heirs may be considered parties to an arbitration
A submission to arbitration is a contract. As such, the agreement entered into by their assignor because the
Agreement, containing the stipulation on arbitration, assignor's rights and obligations are transferred to them
binds the parties thereto, as well as their assigns and upon assignment. In other words, the assignor's rights
heirs. But only they. (Citations omitted) and obligations become their own rights and
obligations. In the same way, the corporation's
As a general rule, therefore, a corporation's obligations are treated as the representative's
representative who did not personally bind himself or obligations when the corporate veil is pierced.
herself to an arbitration agreement cannot be forced to
participate in arbitration proceedings made pursuant to In this case, the Arbitral Tribunal rendered a decision,
an agreement entered into by the corporation. He or finding that BF Corporation failed to prove the existence
she is generally not considered a party to that of circumstances that render petitioners and the other
agreement. directors solidarity liable. It ruled that petitioners and
Shangri-La's other directors were not liable for the
However, there are instances when the distinction contractual obligations of Shangri-La to BF
between personalities of directors, officers, and Corporation. The Arbitral Tribunal's decision was made
representatives, and of the corporation, are with the participation of petitioners, albeit with their
disregarded. We call this piercing the veil of corporate continuing objection. In view of our discussion above,
fiction. we rule that petitioners are bound by such decision.

Piercing the corporate veil is warranted when "[the 34. G.R. No. 126601. February 24, 1998
separate personality of a corporation] is used as a
means to perpetrate fraud or an illegal act, or as a CEBU FILVENEER CORPORATION and/or CARLO
vehicle for the evasion of an existing obligation, the CORDARO vs. NATIONAL LABOR RELATIONS
circumvention of statutes, or to confuse legitimate COMMISSION (Fourth Division) and JESSIELYN
issues." It is also warranted in alter ego cases "where a VILLAFLOR
corporation is merely a farce since it is a mere alter ego
***LABOR CASE***
or business conduit of a person, or where the
48 CORPORATION LAW CASE DIGESTS | 1
corporation is so organized and controlled and its affairs Doctrine: Doctrine of Separate Juridical Personality –
are so conducted as to make it merely an that a corporation has a juridical personality separate
instrumentality, agency, conduit or adjunct of another and distinct from the stockholders or members who
corporation." compose it or other corporations to which it is
associated”
Hence, when the directors, as in this case, are
impleaded in a case against a corporation, alleging FACTS:
malice or bad faith on their part in directing the affairs
of the corporation, complainants are effectively alleging Jessielyn Villaflor was hired as chief accountant of
that the directors and the corporation are not acting as petitioner Cebu Filveneer Corporation. Ms. Rhodora M.
separate entities. They are alleging that contracts Guillermo served as her accounting clerk. The top
executed by the corporation are contracts executed by executives of petitioner corporation were Italians: Mr.
the directors. Complainants effectively pray that the Carlo Cordaro, President; Mr. John Chapman Kun,
corporate veil be pierced because the cause of action General Manager; and, Mr. Renato Marinoni,
between the corporation and the directors is the same. Production Manager. Mr. Kun informed Mr. Cordaro of
his desire to resign as general manager effective March
In that case, complainants have no choice but to 1, 1992. He requested for the liquidation of his
investment in the company in the sum of P125,000.00.
institute only one proceeding against the parties. Under
the Rules of Court, filing of multiple suits for a single Mr. Kun secured one blank check and blank check
cause of action is prohibited. It is because the voucher from Ms. Guillermo. Ms. Guillermo failed to
personalities of petitioners and the corporation may immediately inform the private respondent of the blank
later be found to be indistinct that we rule that check and voucher taken by Mr. Kun. Private
petitioners may be compelled to submit to arbitration. respondent, however, noticed the missing check
voucher. She asked Ms. Guillermo about the check
However, in ruling that petitioners may be compelled to voucher and was told that it was with Mr. Kun. Mr. Kun
submit to the arbitration proceedings, we are not was able to prepare the check in the amount of
overturning Heirs of Angus to Salas wherein this court P125,000.00, had it signed by Mr. Marinoni and
affirmed the basic arbitration principle that only parties encashed.
to an arbitration agreement may be compelled to
submit to arbitration. Private respondent learned of Mr. Kun's act and
forthwith informed Mr. Cordaro who was then in Italy.
 Mr. Cordaro suspended Mr. Kun and designated Mr. private respondent can hardly be described as "willful"
Marinoni and the private complainant as responsible to justify her dismissal. For one, the omission did not
persons for the company funds. He also directed the last for long. For another, the subsequent actions of the
private complainant to assist the company lawyer in private respondent upon learning of the encashment of
filing a criminal case against Mr. Kun. On her part, the the unauthorized check by Mr. Kun negate any
private complainant wrote to the PNB MEPZ Branch implication that she willfully or intentionally defaulted
demanding the return of the encashed check. in reporting to prejudice petitioners. Indeed, she
reported the matter to petitioner Cordaro and wrote to
Mr. Marinoni confronted the private respondent and the PNB MEPZ Branch to retrieve the encashed check. A
charged her with complicity in Mr. Kun's irregular breach is willful if it is done intentionally, knowingly and
disbursement of company funds. On February 17, 1992, purposely. Petitioners merely proved the omission of
the private respondent reported for work late and was the private respondent but there is no evidence
prevented entry by the security guards. A Restriction whatsoever that it was done intentionally.
Order has been issued against her by Mr. Marinoni
upon authority of Mr. Cordaro. Mr. Marinoni also Petitioners' demand that the backwages should he
caused the forcible opening of private respondent's reduced in view of the time she spent in the United
table and the vault inside her office. States deserves scant attention. On 21 March 1989,
Republic Act No. 6715 took effect, amending the Labor
Private respondent complained to the MEPZ Labor Code. Article 279 thereof states in part:
Relations Officer. The next day, Mr. Marinoni issued a
memorandum suspending the private respondent for Art. 279. Security of Tenure. — An employee who is
thirty (30) days without pay effective February 17, 1992 unjustly dismissed from work shall be entitled to
for failure to report to office for half a day. On February reinstatement without loss of seniority rights and other
19, 1992, the private respondent filed a case against the privileges and to his  full backwages, inclusive of
petitioners for illegal dismissal. On February 20, 1992, allowances, and to his other benefits or their monetary
Mr. Marinoni issued another memorandum equivalent computed from the time his compensation is
preventively suspending her for thirty (30) days withheld from him up to the time of his actual
effective the next day pending investigation on her reinstatement.
involvement in the unauthorized encashment by Mr.
Kun of company funds. Backwages to be awarded to an illegally dismissed
employee, should not, as a general rule, be diminished
ISSUES: or reduced by the earnings derived by him elsewhere
49 CORPORATION LAW CASE DIGESTS | 1
during the period of his illegal dismissal. The underlying
Whether private respondent Villaflor was illegally reason for this ruling is that the employee, while
dismissed? Whether the amount earned of an litigating the legality (illegality) of his dismissal, must
employee during the termination should be deducted still earn a living to support himself and family, while full
from the amount awarded to the employee? Whether backwages have to be paid by the employer as part of
the award for moral damages is warranted to the the price or penalty he has to pay for illegally dismissing
employee? his employee.
RELEVANT ISSUE: Whether the President, Mr. Cordaro, We hold that public respondent should not have
should be solidarily liable with the corporation for the awarded moral damages and attorney's fees in favor of
payment to the employee? the private respondent. To be sure, the private
respondent was negligent when she did not
RULING:
immediately inform her superior about the blank check
In labor-management relations, there can be no higher and voucher taken by Mr. Kun, although, as
penalty than dismissal from employment. Dismissal aforediscussed, it is not the specie of negligence that
severs employment ties and could well be the economic will justify dismissal. Thus, petitioners should not and
death sentence of an employee. Dismissal prejudices cannot be made to pay moral damages and attorney's
the socio-economic wellbeing of the employee's family fees for their dismissal of the private respondent was
and threatens the industrial peace. Due to its far not motivated by bad faith or malice.
reaching implications, our Labor Code decrees that an
Finally, we hold that Mr. Cordaro cannot be made
employee cannot be dismissed, except for the most
solidarily liable with petitioner corporation for the
serious causes. The overly concern of our laws for the
illegal dismissal of the private respondent. In
welfare of employees is in accord with the social justice
dismissing the private respondent, he acted as
philosophy of our Constitution.
President of petitioner corporation and he did so in
Prescinding from these premises, petitioners' insistence good faith. His act as an officer of the corporation
that they legally dismissed the private respondent for cannot result in his private liability. This is too
loss of trust stands on quicksand. At the very most, fundamental. A rule to deserve further discussion.
petitioners were only able to prove that private
34 – A. G.R. No. L-57767 January 31, 1984
respondent failed to inform immediately her superiors
of the act of Mr. Kun in getting a blank check and blank ALBERTO S. SUNIO and ILOCOS COMMERCIAL
voucher from Ms. Guillermo. The omission of the CORPORATION, petitioners, vs. NATIONAL LABOR
 RELATIONS COMMISSION, NEMESIO VALENTON, dismissal of private respondents. Petitioner Sunio was
SANTOS DEL ROSARIO, VICENTE TAPUCOL, ANDRES impleaded in the Complaint his capacity as General
SOLIS, CRESCENCIO SOLLER, CECILIO LABUNI, SOTERO Manager of petitioner corporation. Where appears to
L. TUMANG, in his capacity as Asst. Regional Director be no evidence on record that he acted maliciously or in
for Arbitration, Regional Office No. 1, Ministry of Labor bad faith in terminating the services of private
& Employment, and AMBROSIO B. SISON, in his respondents. His act, therefore, was within the scope of
capacity as Acting Regional Sheriff, Regional Office No. his authority and was a corporate act.
1, Ministry of Labor & Employment, respondents.
It is basic that a corporation is invested by law with a
***LABOR CASE*** personality separate and distinct from those of the
persons composing it as well as from that of any other
Doctrine: A corporation is invested by law with a legal entity to which it may be related.  Mere ownership
personality separate and distinct from those of the by a single stockholder or by another corporation of all
persons composing it as well as from that of any other or nearly all of the capital stock of a corporation is not
legal entity to which it may be related. Mere ownership of itself sufficient ground for disregarding the separate
by a single stockholder or by anotehr coporation of all corporate personality. Sunio, therefore, should not have
or nearly all of the capital stock of a corporation is not been made personally answerable for the payment of
tiself sufficient ground for disregarding the separate private respondents' back salaries.
corporate personality.
35. Consolidated Bank and Trust Corporation vs CA 356
FACTS: SCRA 67
EM Ramos & Co., Inc (EMRACO) and Cabugao Ice Plant, Doctrine: Corporate personality is a shield against
Inc. (CIPI), sister corporations, sold an ice plant to Rizal personal liability of its officers. 
Development and Finance, Corp. (RDFC). To secure
RDFC’s payment of the purchase price, the ice plant was FACTS:
mortgaged to EMRACO-CIPI. Because of the sale,
EMRACO-CIPI terminated all of theire employees, Continental Cement Corporation (Corporation) and
including private respondents. Gregory T. Lim obtained, from Consolidated Bank and
Trust Corporation, Letter of Credit No. DOM-23277 in
Later, RDFC sold the ice plant, subject to the mortgage the amount of P 1,068,150.00. The letter of credit was
in favor of EMRACO-CIPI, to petitioner Ilocos used to purchase around five hundred thousand liters of
50 Commercial Corp. (ICC). bunker fuel oil CORPORATION
from Petrophil LAW CASE DIGESTS
Corporation, which|the
1
latter delivered directly to respondent Corporation in its
When RDFC and ICC defaulted on the payment of the Bulacan plant. In relation to the same transaction, a
balance of the purchase price, EMRACO-CIPI trust receipt for the amount of P 1,001,520.93 was
extrajudicially foreclosed the ice plant. It then sold it to executed by respondent Corporation, with respondent
Nilo Villanueva, subject to RDFC’s right of redemption. Lim as signatory.
Nilo Villanueva rehired private respondents.
Claiming that respondents failed to turn over the goods
When RDFC redeemend the ice plant, private covered by the trust receipt or the proceeds thereof,
respondents were again dismissed. Thus, the latter filed petitioner filed a complaint for sum of money with
complaints against the petitioner corporation, and its application for preliminary attachment. In answer to the
President and General manager, Alberto Sunio, for complaint, respondents averred that the transaction
illegal dismissal. between them was a simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner
The Assistance Regional Director of the Ministry of
did not take into account payments already made by
Labor and Employment ordered petitioners to reinstate
them. Respondent Lim also denied any personal liability
private respondents. NLRC affirmed. Petitioner Sunio,
in the subject transactions.
who owned ½ of ICC, was made jointly and severally
liable with ICC and CIPI for the payment of backwages. The trial court dismissed the Complaint. Both parties
appealed to the Court of Appeals, which partially
ISSUE:
modified the Decision by deleting the award of
Whether or not Sunio is personally liable, made jointly attorney's fees in favor of respondents and, instead,
and severally responsible with petitioner company and ordering respondent Corporation to pay petitioner
CIPI for the payment of the backwages of private P37,469.22 as and for attorney's fees and litigation
respondents expenses.

RULING: ISSUE: WON the transaction was a trust receipt

transaction?
This is reversible error. The Assistant Regional Director's
Decision failed to disclose the reason why he was made RULING: NO.
personally liable. Respondents, however, alleged as
The Supreme Court held that petitioner failed to
grounds thereof, his being the owner of one-half (1/2)
convince them that the transaction is really a trust
interest of said corporation, and his alleged arbitrary
 receipt transaction instead of merely a simple loan, as Petitioners argument that respondent Corporation and
found by the lower court and the CA. respondent Lim and his spouse are one and the same
cannot be sustained. 
Inasmuch as the debtor received the goods subject of
the trust receipt before the trust receipt itself was The transactions sued upon were clearly entered into by
entered into, the transaction in question was a simple respondent Lim in his capacity as Executive Vice
loan and not a trust receipt agreement. Prior to the President of respondent Corporation. 
date of execution of the trust receipt, ownership over
the goods was already transferred to the debtor. This The Supreme Court stress the hornbook law that
situation is inconsistent with what normally obtains in a corporate personality is a shield against personal
pure trust receipt transaction, wherein the goods liability of its officers. Thus, the court agrees that
belong in ownership to the bank and are only released respondents Gregory T. Lim and his spouse cannot be
to the importer in trust after the loan is granted. made personally liable since respondent Lim entered
into and signed the contract clearly in his official
The delivery to respondent Corporation of the goods capacity as Executive Vice President. The personality of
subject of the trust receipt occurred long before the the corporation is separate and distinct from the
trust receipt itself was executed. More specifically, persons composing it.
delivery of the bunker fuel oil to respondent
Corporation's Bulacan plant commenced on July 7, 1982 36. Secosa vs Heirs of Erwin Suarez Francisco, 433
and was completed by July 19, 1982.13 Further, the oil SCRA 263
was used up by respondent Corporation in its normal
Doctrine: A corporation has a personality separate
operations by August, 1982.14 On the other hand, the
from that of its stockholders or members. The doctrine
subject trust receipt was only executed nearly two
of ‘veil of corporation’ treats as separate and distinct
months after full delivery of the oil was made to
the affairs of a corporation and its officers and
respondent Corporation, or on September 2, 1982.
stockholders. As a rule, a corporation will be looked
Trust Receipts Law does not seek to enforce payment of upon as a legal entity, unless and until sufficient reason
the loan, rather it punishes the dishonesty and abuse of to the contrary appears. When the notion of legal entity
confidence in the handling of money or goods to the is used to defeat public convenience, justify wrong,
prejudice of another regardless of whether the latter is protect fraud, or defend crime, the law will regard the
the owner. The practice of banks of making borrowers corporation as an association of persons. Also, the
sign trust receipts to facilitate collection of loans and corporate entity may be disregarded in the interest of
51 CORPORATION
justice in such cases LAWmay
as fraud that CASE DIGESTS
work |1
inequities
place them under the threats of criminal prosecution
should they be unable to pay it may be unjust and among members of the corporation internally, involving
inequitable, if not reprehensible. Such agreements are no rights of the public or third persons. In both
contracts of adhesion which borrowers have no option instances, there must have been fraud and proof of it
but to sign lest their loan be disapproved. The resort to
FACTS:
this scheme leaves poor and hapless borrowers at the
mercy of banks, and is prone to misinterpretation. Francisco, an 18 year old 3rd year physical therapy
student was riding a motorcycle. A sand and gravel
Similarly, respondent Corporation cannot be said to
truck was traveling behind the motorcycle, which in
have been dishonest in its dealings with petitioner.
turn was being tailed by the Isuzu truck driven by
Neither has it been shown that it has evaded payment
Secosa. The Isuzu cargo truck was owned by Dassad
of its obligations, as shown by the various receipts
Warehousing and Port Services, Inc. The three vehicles
issued by petitioner acknowledging payment on the
were traversing the southbound lane at a fairly high
loan. Certainly, the payment of the sum of
speed. When Secosa overtook the sand and gravel
P1,832,158.38 on a loan with a principal amount of only
truck, he bumped the motorcycle causing Francisco to
P681,075.93 negates any badge of dishonesty , abuse of
fall. The rear wheels of the Isuzu truck then ran over
confidence or mishandling of funds on the part of
Francisco, which resulted in his instantaneous death.
respondent Corporation, which are the gravamen of a
Secosa left his truck and fled the scene of the collision.
trust receipt violation.
The parents of Francisco, respondents herein, filed an
RELEVANT ISSUE: WHETHER OR NOT THE RESPONDENT
action for damages against Secosa, Dassad Warehousing
APPELLATE COURT GRIEVOUSLY ERRED IN NOT
and Port Services, Inc. and Dassad’s president, El
HOLDING PRIVATE RESPONDENT SPOUSES LIABLE
Buenasucenso Sy.
UNDER THE TRUST RECEIPT TRANSACTION.
The court a quo rendered a decision in favor of herein
RULING:
respondents; thus petitioners appealed the decision to
The Supreme Court is not convinced that respondent the Court of Appeals, which unfortunately affirmed the
Gregory T. Lim and his spouse should be personally appealed decision in toto. Hence, the present petition.
liable under the subject trust receipt. 
ISSUE:
 Whether or not Dassad’s president, El Buenasucenso that despite the completion of the electrical works at
Sy, can be held solidary liable with co-petitioners. Ciano Plaza Building, the latter only paid the amount of
P5,031,860.40, which is equivalent to more than 95% of
RULING: the total contract price, thereby leaving a balance of
P268,139.80. Agcolicol likewise claimed the amount of
No. Sy cannot be held solidarily liable with his co-
P722,730.38 as additional electrical works which were
petitioners. While it may be true that Sy is the president
necessitated by the alleged revisions in the structural
of Dassad Warehousing and Port Services, Inc., such fact
design of the building.
is not by itself sufficient to hold him solidarily liable for
the liabilities adjudged against his co-petitioners. In their answer, petitioners contended that they cannot
be obliged to pay the balance of the contract price
A corporation has a personality separate from that of its
because the electrical installations were defective and
stockholders or members. The doctrine of ‘veil of
were completed beyond the agreed period.
corporation’ treats as separate and distinct the affairs of
a corporation and its officers and stockholders. As a During the trial, Chien testified that they should not be
rule, a corporation will be looked upon as a legal entity, held liable for the additional electrical works allegedly
unless and until sufficient reason to the contrary performed by Powton because they never authorized
appears. When the notion of legal entity is used to the same. At the pre-trial conference, the parties
defeat public convenience, justify wrong, protect fraud, stipulated, inter alia, that the unpaid balance claimed by
or defend crime, the law will regard the corporation as the respondent is P268,139.60 and the cost of
an association of persons. Also, the corporate entity additional work is P722,730.38. On 16 August 1999, a
may be disregarded in the interest of justice in such decision was rendered awarding Agcolicol the total
cases as fraud that may work inequities among award of P990,867.38 representing the unpaid balance
members of the corporation internally, involving no and the costs of additional works.
rights of the public or third persons. In both instances,
there must have been fraud and proof of it. Aggrieved, Powton and Chien appealed to the Court of
Appeals which, on 3 September 2001 however, affirmed
The records of the case does not point toward the the decision of the trial court. The motion for
presence of any grounds enumerated above that will reconsideration was likewise denied on 5 December
justify the piercing of the veil of corporate entity such as 2001. Powton and Chien filed the petition for review on
to hold Sy, the president of Dassad Warehousing and certiorari.
Port Services, Inc., solidarily liable with it.
52 ISSUE: WhetherCORPORATION LAW CASEcan
Chien, as president, DIGESTS |1
be made
Furthermore, the Isuzu cargo truck which ran over solidarily liable with Powton
Francisco was registered in the name of Dassad and not
in the name of Sy. Secosa is an employee of Dassad and RULING: NO
not of Sy. These facts showed Sy’s exclusion from
liability for damages arising from the death of Francisco. The settled rule is that, a corporation is invested by law
with a personality separate and distinct from those of
37. Powton Conglomerate Inc. vs Agcolicol 400 SCAR the persons composing it, such that, save for certain
523 exceptions, corporate officers who entered into
contracts in behalf of the corporation cannot be held
FACTS: personally liable for the liabilities of the latter.
Sometime in November 1990, Johnny Agcolicol, Personal liability of a corporate director, trustee or
proprietor of Japerson Engineering, entered into an officer along (although not necessarily) with the
"Electrical Installation Contract" with Powton corporation may so validly attach, as a rule, only when
Conglomerate, Inc. (Powton), thru its President and (1) he assents to a patently unlawful act of the
Chairman of the Board, Philip C. Chien. For a contract corporation, or when he is guilty of bad faith or gross
price of P5,300,000.00, Agcolicol undertook to provide negligence in directing its affairs, or when there is a
electrical works as well as the necessary labor and conflict of interest resulting in damages to the
materials for the installation of electrical facilities at the corporation, its stockholders or other persons; (2) he
Ciano Plaza Building owned by Powton, located along consents to the issuance of watered down stocks or
M. Reyes Street, corner G. Mascardo Street, Bangkal, who, having knowledge thereof, does not forthwith file
Makati, Metro Manila. with the corporate secretary his written objection
thereto; (3) he agrees to hold himself personally and
In August 1992, the City Engineer's Office of Makati
solidarily liable with the corporation; or (4) he is made
inspected the electrical installations at the Ciano Plaza
by a specific provision of law personally answerable for
Building and certified that the same were in good
his corporate action.
condition. Hence, it issued the corresponding certificate
of electrical inspection. Considering that none of the foregoing exceptions was
established in the present case, Chien, who entered into
On 16 December 1994, Agcolicol filed with the Regional
a contract with Agcolicol in his capacity as President and
Trial Court of Pasay City, Branch 115, the complaint for
Chairman of the Board of Powton, cannot be held
sum of money against Powton and Chien. He alleged
solidarily liable with the latter.
 38. Luxuria Homes, Inc. vs. CA 302 SCRA 315 performance before the trial court against Posadas and
Luxuria Homes, Inc.
Doctrine: PIERCING THE VEIL OF CORPORATE
ENTITY; WHEN ALLOWED. To disregard the separate On 27 September 1993, the trial court declared Posadas
juridical personality of a corporation, the wrongdoing in default and allowed James Builder Construction and
must be clearly and convincingly established.  It cannot Bravo to present their evidence ex-parte.
be presumed.  This is elementary.  Thus in Bayer-Roxas
v. Court of Appeals, we said that the separate On 8 March 1994, it ordered Posadas, jointly and in
personality of the corporation may be disregarded only solidum with Luxuria Homes, Inc., to pay Bravo, et. al.
when the corporation is used as a cloak or cover for the balance of the payment for the various services
fraud or illegality, or to work injustice, or where performed by them in the total amount of
necessary for the protection of the creditors. P1,708,489.00; actual damages incurred for the
construction of the warehouse/bunks, and for the
Obviously in the instant case, private respondents failed material used in the total sum of P1,500.000.00; moral
to show proof that petitioner Posadas acted in bad and exemplary damages of P500.000.00; Attorney's fee
faith.  Consequently, since private respondents failed to of P50,000.00; and cost of this proceedings. The court
show that petitioner Luxuria Homes, Inc., was a party to also directed Posadas as the Representative of the
any of the supposed transactions, not even to the Corporation Luxuria Homes, Incorporated, to execute
agreement to negotiate with and relocate the squatters, the management contract she committed to do, also in
it cannot be held liable, nay jointly and in solidum, to consideration of the various undertakings that Bravo
pay private respondents.  In this case since it was rendered for her. 
petitioner Aida M. Posadas who contracted respondent
Bravo to render the subject services, only she is liable to Luxuria Homes and Posadas appealed to the Court of
pay the amounts adjudged herein. Appeals. The appellate court affirmed with modification
the decision of the trial court. The appellate court
FACTS:  deleted the award of moral damages on the ground that
James Builder Construction is a corporation and hence
Aida M. Posadas and her two (2) minor children co- could not experience physical suffering and mental
owned a 1.6 hectare property in Sucat, Muntinlupa, anguish. It also reduced the award of exemplary
which was occupied by squatters. Posadas entered into damages. Luxuria Homes' and Posadas' motion for
negotiations with Jaime T. Bravo regarding the reconsideration, prompting them to file the petition for
development of the said property into a residential review before the Supreme Court. 
53 subdivision. CORPORATION LAW CASE DIGESTS | 1
ISSUE: Whether Luxuria Homes, Inc., was a party to the
On 3 May 1989, she authorized Bravo to negotiate with transactions entered into by Posadas with Bravo and
the squatters to leave the said property. With a written James Builder Construction and thus could be held
authorization, Bravo buckled down to work and started jointly and severally with Posadas. 
negotiations with the squatters.
RULING:
Meanwhile, some 7 months later, on 11 December
1989, Posadas and her children, through a Deed of It cannot be said then that the incorporation of Luxuria
Assignment, assigned the said property to Luxuria Homes and the eventual transfer of the subject
Homes, Inc., purportedly for organizational and tax property to it were in fraud of Bravo and James Builder
avoidance purposes. Bravo signed as one of the Construction as such were done with the full knowledge
witnesses to the execution of the Deed of Assignment of Bravo himself, as evidenced by the Deed of
and the Articles of Incorporation of Luxuria Homes, Inc. Assignment dated 11 December 1989 and the Articles of
Incorporation of Luxuria Homes, Inc., issued 26 January
Then sometime in 1992, the harmonious and congenial 1990 were both signed by Bravo himself as witness.
relationship of Posadas and Bravo turned sour when the
former supposedly could not accept the management Further, Posadas is not the majority stockholder of
contracts to develop the 1.6 hectare property into a Luxuria Homes, Inc. The Articles of Incorporation of
residential subdivision, the latter was proposing. Luxuria Homes, Inc., clearly show that Posadas owns
approximately 33% only of the capital stock. Hence,
In retaliation, Bravo demanded payment for services Posadas cannot be considered as an alter ego of Luxuria
rendered in connection with the development of the Homes, Inc.
land. In his statement of account dated 21 August 1991,
Bravo demanded the payment of P1,708,489.00 for To disregard the separate juridical personality of a
various services rendered, i.e., relocation of squatters, corporation, the wrongdoing must be clearly and
preparation of the architectural design and site convincingly established. It cannot be presumed. Bravo,
development plan, survey and fencing. Posadas refused et. al. failed to show proof that Posadas acted in bad
to pay the amount demanded.  faith, and consequently that Luxuria Homes, Inc., was a
party to any of the supposed transactions, not even to
Thus, in September 1992, James Builder Construction the agreement to negotiate with and relocate the
and Jaime T. Bravo instituted a complaint for specific squatters, it cannot be held liable, nay jointly and in
solidum, to pay Bravo, et. al. Hence, since it was
 Posadas who contracted Bravo to render the subject Furthermore, respondents contended that while
services, only she is liable to pay the amounts adjudged Vicmar, TFDI and Gin were separately registered with
by the Court. the SEC, they were involved in the same business,
located in the same compound, owned by one person,
39. Vicmar Development Corporation vs Elacosa, 777 had one resident manager, and one and the same
SCRA 239 (December 2015) administrative department, personnel and finance
sections. They claimed that the employees of these
***LABOR CASE***
companies were identified as employees of Vicmar
FACTS: even if they were assigned in TFDI or GIII.

This case stemmed from a Complaint for illegal dismissal On the other hand, petitioners stated that respondents
and money claims filed by Ruben Panes, Ruel Cabanday Allan Baguio, Romel Patoy, Rexy Dofeliz, Marlon Banda,
and Jonard Abugho (respondents) against Vicmar Gulben Rhyan Ramos, Julieto Simon and Agapito Canas,
Development Corporation (Vicmar) and/or Robert Kua Jr. were "extra" workers of TFDI, not Vicmar. They
(Kua), its owner and Juanito Pagcaliwagan likewise alleged that a number of respondents were
(Pagcaliwagan), its manager, and consolidated engaged to assist regular employees in the company,
Complaints for illegal dismissal and money claims filed and the others were hired to repair used steel straps
by Camilo Elarcosa, et al. and retrieve useable veneer materials, or to perform
janitorial services.

Respondents alleged that Vicmar, a domestic Petitioners further asseverated that sometime in August
corporation engaged in manufacturing of plywood for 2004, they decided to engage the services of legitimate
export and for local sale, employed them in various independent contractors, namely, E.A. Rosales
capacities - as boiler tenders, block board receivers, Contracting Services and Candole Contracting Services,
waste feeders, plywood checkers, plywood sander, to provide additional workforce. Petitioners claimed
conveyor operator, ripsaw operator, lumber grader, that they were unaware that respondents were
pallet repair, glue mixer, boiler fireman, steel strap dissatisfied with this decision leading to the DOLE case.
repair, debarker operator, plywood repair and They insisted that hiring said contractors was a cost-
reprocessor, civil workers and plant maintenance. They saving measure, which was part of Vicmar's
averred that Vicmar has two branches, Top Forest management prerogative.
Developers, Incorporated (TFDI) and Greenwood
54 International Industries, Incorporated (GUI) located in CORPORATION LAW CASE DIGESTS | 1
the same compound where Vicmar operated. Ruling of the Executive Labor Arbiters

Respondents declared that Vicmar paid them minimum

On May 25, 2006, ELA Pelaez dismissed the complaints.
wage and a small amount for overtime but it did not
On May 29, 2006, ELA Magbanua dismissed the
give them benefits as required by law, such as
complaint.
Philhealth, Social Security System, 13 th month pay,
holiday pay, rest day and night shift differential.They Both ELAs Pelaez and Magbanua held that respondents
added that Vicmar employed more than 200 regular were seasonal employees of Vicmar, whose work was
employees and more than 400 "extra" workers. "co-terminus or dependent upon the extraordinary
demands for plywood products and also on the
Sometime in 2004, Vicmar allegedly informed availability of logs or timber to be processed into
respondents that they would be handled by contractors. plywood."45 They noted that Vicmar could adopt cost-
Respondents stated that these contractors were former saving measures as part of its management prerogative,
employees of Vicmar and had no equipment and including engagement of legitimate independent
facilities of their own. Respondents averred that as a contractors.46
result thereof, the wages of a number of them who
were reduced. Respondents protested said wage Ruling of the National Labor Relations Commission
decrease but to no avail. Thus, they filed a Complaint
with the DOLE for violations of labor standards for which On February 2, 2007, the NLRC affirmed the Decisions of
appropriate compliance orders were issued against ELAs Pelaez and Magbanua. 49 On April 30, 2007, it
Vicmar. denied respondents' motion for reconsideration. 50

Ruling of the Court of Appeals

Respondents claimed that they were illegally dismissed
after Vicmar learned that they instituted the subject The CA held that a number of respondents were
Complaint through the simple expedience of not being assigned to the boiler section where plywood was dried
scheduled for work. Even those persons associated with and cooked to perfection; and while the other
them were dismissed. They also asserted that Vicmar respondents were said to have been assigned at the
did not comply with the twin notice requirement in general service section, they were "cleaners on an
dismissing employees.29 industrial level handling industrial refuse."  
 As such, according to the CA, respondents performed
activities necessary and desirable in the usual business 40. G.R. No. 142936. April 17, 2002
of Vicmar, as they were assigned to departments vital to
its operations. It also noted that the repeated hiring of PHILIPPINE NATIONAL BANK & NATIONAL SUGAR
respondents proved the importance of their work to DEVELOPMENT CORPORATION, petitioners, vs.
Vicmar's business. It maintained that the contractors ANDRADA ELECTRIC & ENGINEERING
were engaged by Vicmar only for the convenience of COMPANY, respondent.
Vicmar.
Doctrine: Basic is the rule that a corporation has a legal
In sum, the CA declared that respondents were illegally personality distinct and separate from the persons and
dismissed since there was no showing of just cause for entities owning it.  The corporate veil may be lifted only
their termination and of compliance by Vicmar to due if it has been used to shield fraud, defend crime, justify
process of law. a wrong, defeat public convenience, insulate bad faith
or perpetuate injustice.  Thus, the mere fact that the
ISSUE: Philippine National Bank (PNB) acquired ownership or
management of some assets of the Pampanga Sugar
Whether or not the employees were illegally Mill (PASUMIL), which had earlier been foreclosed and
dismissed. YES. purchased at the resulting public auction by the
Development Bank of the Philippines (DBP), will not
Respondents provided hiring dates, sections hired to,
make PNB liable for the PASUMIL’s contractual debts to
and dates of termination to establish that they were
respondent.
regular employees, while Vicmar did not submit any
corresponding documents to refute those of the FACTS:
respondents, giving rise to the presumption that their
presentation would be prejudicial to Vicmar's cause. PASUMIL (Pampanga Sugar Mills) engaged the services
of Andrada Electric for electrical rewinding, repair, the
Respondents were also able to show that their activities construction of a power house building, installation of
were necessary to the usual business of Vicmar, which turbines, transformers, among others. Most of the
made them fall under “regular employees” as defined in services were partially paid by PASUMIL, leaving several
the Labor Code. unpaid accounts.
RELEVANT ISSUE: Whether or not the doctrine of On August 1975, PNB, a semi-government corporation,
55 piercing the veil of corporate fiction is applicable in CORPORATION
acquired the assets LAW CASE DIGESTS
of PASUMIL—assets |1
that were
making Vicmar liable for illegal dismissal, despite some earlier foreclosed by the DBP.
of the employees being under TFDI. YES.
On September 1975, PNB organized NASUDECO
RULING: (National Sugar Development Corporation), under LOI
No. 311 to take ownership and possession of the assets
The Court also gives merit to the finding of the CA that
and ultimately, to nationalize and consolidate its
Vicmar is the employer of respondents despite the
interest in other PNB controlled sugar mills. NASUDECO
allegations that a number of them were assigned to the
is a semi-government corporation and the sugar arm of
branches of Vicmar. Petitioners failed to refute the
the PNB.
contention that Vicmar and its branches have the same
owner and management - which included one resident Andrada Electric alleges that PNB and NASUDECO
manager, one administrative department, one and the should be liable for PASUMIL’s unpaid obligation
same personnel and finance sections. Notably, all amounting to 500K php, damages, and attorney’s fees,
respondents were employed by the same plant having owned and possessed the assets of PASUMIL.
manager, who signed their identification cards some of
whom were under Vicmar, and the others under TFDI. ISSUE:

Where it appears that business enterprises are owned, Whether PNB and NASUDECO may be held liable for
conducted and controlled by the same parties, law and PASUMIL’s liability to Andrada Electric and Engineering
equity will disregard the legal fiction that these Company.
corporations are distinct entities and shall treat them as
RULING:
one. This is in order to protect the rights of third
persons, as in this case, to safeguard the rights of NO.
respondents.78
Basic is the rule that a corporation has a legal
Considering that respondents were regular employees personality distinct and separate from the persons and
and their termination without valid cause amounts to entities owning it. The corporate veil may be lifted only
illegal dismissal, then for its contrary ruling unsupported if it has been used to shield fraud, defend crime, justify
by substantial evidence, the NLRC gravely abused its a wrong, defeat public convenience, insulate bad faith
discretion in dismissing the complaints for illegal or perpetuate injustice.
dismissal. Therefore, the CA Decision setting aside that
of the NLRC is in order and must be sustained.
 Thus, the mere fact that the Philippine National Bank The merger, however, does not become effective upon
(PNB) acquired ownership or management of some the mere agreement of the constituent corporations.
assets of the Pampanga Sugar Mill (PASUMIL), which Since a merger or consolidation involves fundamental
had earlier been foreclosed and purchased at the changes in the corporation, as well as in the rights of
resulting public auction by the Development Bank of the stockholders and creditors, there must be an express
Philippines (DBP), will not make PNB liable for the provision of law authorizing them.
PASUMIL's contractual debts to Andrada Electric &
Engineering Company (AEEC). For a valid merger or consolidation, the approval by the
SEC of the articles of merger or consolidation is
Piercing the veil of corporate fiction may be allowed required. These articles must likewise be duly approved
only if the following elements concur: (1) control not by a majority of the respective stockholders of the
mere stock control, but complete domination² not only constituent corporations.
of finances, but of policy and business practice in
respect to the transaction attacked, must have been In the case at bar, there is no merger or consolidation
such that the corporate entity as to this transaction had with respect to PASUMIL and PNB.  The procedure
at the time no separate mind, will or existence of its prescribed under Title IX of the Corporation Code was
own; (2) such control must have been used by the not followed.
defendant to commit a fraud or a wrong to perpetuate
In fact, PASUMIL’s corporate existence, as correctly
the violation of a statutory or other positive legal duty,
found by the CA, had not been legally extinguished or
or a dishonest and an unjust act in contravention
terminated. Further, prior to PNB’s acquisition of the
of plaintiff's legal right; and (3) the said control and
foreclosed assets, PASUMIL had previously made partial
breach of duty must have proximately caused the injury
payments to respondent for the former’s obligation in
or unjust loss complained of.
the amount of P777,263.80.  As of June 27, 1973,
The absence of the foregoing elements in the present PASUMIL had paid P250,000 to respondent and, from
case precludes the piercing of the corporate veil. January 5, 1974 to May 23, 1974, another P14,000.

First, other than the fact that PNB and NASUDECO

acquired the assets of PASUMIL, there is no showing
Neither did petitioner expressly or impliedly agree to
that their control over it warrants the disregard of
assume the debt of PASUMIL to respondent. LOI No. 11
corporate personalities. Second, there is no evidence
explicitly provides that PNB shall study and submit
that their juridical personality was used to commit a
56 recommendations CORPORATION
on the claimsLAW CASE DIGESTS
of PASUMIL’s |1
creditors.
fraud or to do a wrong; or that the separate corporate
Clearly, the corporate separateness between PASUMIL
entity was farcically used as a mere alter ego, business
and PNB remains, despite respondent’s insistence to
conduit or instrumentality of another entityor person.
the contrary.
Third, AEEC was not defrauded or injured when PNB
and NASUDECO acquired the assets of PASUMIL. Hence, 41. G.R. No. 153535. July 28, 2005
although the assets of NASUDECO can be easily traced
SOLIDBANK CORPORATION, Petitioners, vs.
to PASUMIL, the transfer of the latter's assets to PNB
MINDANAO FERROALLOY CORPORATION, Spouses
and NASUDECO was not fraudulently entered into in
JONG-WON HONG and SOO-OK KIM HONG,*TERESITA
order to escape liability for its debt to AEEC.
CU, and RICARDO P. GUEVARA and
There was NO merger or consolidation with respect to Spouse,** respondents.
PASUMIL and PNB.

Respondent further claims that petitioners should be FACTS:

held liable for the unpaid obligations of PASUMIL by
virtue of LOI Nos. 189-A and 311, which expressly "The Maria Cristina Chemical Industries (MCCI) and
authorized PASUMIL and PNB to merge or consolidate three (3) Korean corporations, namely, the Ssangyong
(allegedly). Corporation, the Pohang Iron and Steel Company and
the Dongil Industries Company, Ltd., decided to forge a
On the other hand, petitioners contend that their joint venture and establish a corporation, under the
takeover of the operations of PASUMIL did not involve name of the Mindanao Ferroalloy Corporation
any corporate merger or consolidation, because the (Corporation for brevity) with principal offices in Iligan
latter had never lost its separate identity as a City. Ricardo P. Guevara was the President and
corporation. Chairman of the Board of Directors of the Corporation.
On November 26, 1990, the Board of Directors of the
A consolidation is the union of two or more existing
Corporation approved a ‘Resolution’ authorizing its
entities to form a new entity called the consolidated
President and Chairman of the Board of Directors or
corporation.  A merger, on the other hand, is a union
Teresita R. Cu, acting together with Jong-Won Hong, to
whereby one or more existing corporations are
secure an omnibus line in the aggregate amount of
absorbed by another corporation that survives and
₱30,000,000.00 from the Solidbank. "In the meantime,
continues the combined business.
the Corporation started its operations sometime in
April, 1991. Its indebtedness ballooned to
 ₱200,453,686.69 compared to its assets of only corporation may so validly attach, as a rule, only when
₱65,476,000.00. On May 21, 1991, the Corporation —
secured an ordinary time loan from the Solidbank in the ‘1. He assents (a) to a patently unlawful act of the
amount of ₱3,200,000.00. Another ordinary time loan corporation, or (b) for bad faith or gross negligence in
was granted by the Bank to the Corporation on May 28, directing its affairs, or (c) for conflict of interest,
1991, in the amount of ₱1,800,000.00 or in the total resulting in damages to the corporation, its stockholders
amount of ₱5,000,000.00, due on July 15 and 26, 1991, or other persons;
respectively. The Corporation executed ‘Promissory
‘2. He consents to the issuance of watered stocks or
Note No. 96-91-00865-6’ in favor of the Bank evidencing
who, having knowledge thereof, does not forthwith file
its loan in the amount of ₱5,160,000.00, payable on
with the corporate secretary his written objection
September 20, 1991. Teresita Cu and Jong-Won Hong
thereto;
affixed their signatures on the note. To secure the
payment of the said loan, the Corporation, through ‘3. He agrees to hold himself personally and solidarily
Jong-Won Hong and Teresita Cu, executed a ‘Deed of liable with the corporation; or
Assignment’ in favor of the Bank covering its rights, title ‘4. He is made, by a specific provision of law, to
and interest. The Corporation likewise executed a personally answer for his corporate action.’"
‘Quedan’, by way of additional security, under which Consistent with the foregoing principles, we sustain the
the Corporation bound and obliged to keep and hold, in CA’s ruling that Respondent Guevara was not personally
trust for the Bank or its Order, ‘Ferrosilicon for liable for the contracts. First, it is beyond cavil that he
US$197,679.00’. Jong-Won Hong and Teresita Cu affixed was duly authorized to act on behalf of the corporation;
their signatures thereon for the Corporation. The and that in negotiating the loans with petitioner, he did
Corporation, also, through Jong-Won Hong and Teresita so in his official capacity. Second, no sufficient and
Cu, executed a ‘Trust Receipt Agreement’, by way of specific evidence was presented to show that he had
additional security for said loan, the Corporation acted in bad faith or gross negligence in that
undertaking to hold in trust, for the Bank, as its negotiation. Third, he did not hold himself personally
property. "However, shortly after the execution of the and solidarily liable with the corporation. Neither is
said deeds, the Corporation stopped its operations. The there any specific provision of law making him
Corporation failed to pay its loan availments from the personally answerable for the subject corporate acts.
Bank inclusive of accrued interest. On February 11,
1992, the Bank sent a letter to the Corporation On the other hand, Respondents Cu and Hong signed
demanding payment of its loan availments inclusive of the Promissory Note without the word "by" preceding
57 interests due. The Corporation failed to comply with the their signatures, atop LAWthe
CORPORATION designation
CASE DIGESTS |1
demand of the Bank. "Maker/Borrower" and the printed name of the
corporation, as follows:
On December 10, 1999, the Court rendered a Decision
dismissing the complaint for lack of cause of action of __(Sgd) Cu/Hong__
[petitioner] against the Spouses Jong-Won Hong, (Maker/Borrower)
Teresita Cu and the Spouses Ricardo Guevara. MINDANAO FERROALLOY
While their signatures appear without qualification, the
ISSUE: inference that they signed in their individual capacities
Whether or not there is ample evidence on record to is negated by the following facts: 1) the name and the
support the joint and solidary liability of individual address of the corporation appeared on the space
respondents with Mindanao Ferroalloy Corporation. provided for "Maker/Borrower"; 2) Respondents Cu and
Hong had only one set of signatures on the instrument,
when there should have been two, if indeed they had
RULING: intended to be bound solidarily -- the first as
NO. No Personal Liability for Corporate Deeds representatives of the corporation, and the second as
themselves in their individual capacities; 3) they did not
Basic is the principle that a corporation is vested by law
sign under the spaces provided for "Co-maker," and
with a personality separate and distinct from that of
neither were their addresses reflected there; and 4) at
each person composing9 or representing it.10 Equally
the back of the Promissory Note, they signed above the
fundamental is the general rule that corporate officers
words "Authorized Representative."
cannot be held personally liable for the consequences
of their acts, for as long as these are for and on behalf Solidary Liability Not Lightly Inferred
of the corporation, within the scope of their authority Moreover, it is axiomatic that solidary liability cannot be
and in good faith.11 The separate corporate personality lightly inferred.14 Under Article 1207 of the Civil Code,
is a shield against the personal liability of corporate "there is a solidary liability only when the obligation
officers, whose acts are properly attributed to the expressly so states, or when the law or the nature of the
corporation.12 obligation requires solidarity." Since solidary liability is
Tramat Mercantile v. Court of Appeals13 held thus: not clearly expressed in the Promissory Note and is not
required by law or the nature of the obligation in this
"Personal liability of a corporate director, trustee or
case, no conclusion of solidary liability can be made.
officer along (although not necessarily) with the
No Reason to Pierce the Corporate Veil
 Under certain circumstances, courts may treat a Industrial Corporation. Subsequently, on September 16,
corporation as a mere aggroupment of persons, to 1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio
whom liability will directly attach. The distinct and Galeon and Julian Jader incorporated the Margo
separate corporate personality may be Management and Development Corporation
disregarded, inter alia, when the corporate identity is (Margo). 8 The total subscribed capital stock of Margo.
used to defeat public convenience, justify a wrong, On November 10, 1982, Manuel Gala sold 13,314 of his
protect a fraud, or defend a crime. Likewise, the shares in Ellice to Margo. 10
corporate veil may be pierced when the corporation Alicia Gala transferred 1,000 of her shares in Ellice to a
acts as a mere alter ego or business conduit of a person, certain Victor de Villa on March 2, 1983. That same day,
or when it is so organized and controlled and its affairs de Villa transferred said shares to Margo. 11 A few
so conducted as to make it merely an instrumentality, months later, on August 28, 1983, Alicia Gala
agency, conduit or adjunct of another corporation. 20 But transferred 854.3 of her shares to Ofelia Gala, 500 to
to disregard the separate juridical personality of a Guia Domingo and 500 to Raul Gala. Years later, on
corporation, the wrongdoing must be clearly and February 8, 1988, Manuel Gala transferred all of his
convincingly established; it cannot be presumed. 21 remaining holdings in Ellice, amounting to 2,164 shares,
Unfortunately, petitioner was unable to establish clearly to Raul Gala. 13
and precisely how the alleged fraud was committed. It On July 20, 1988, Alicia Gala transferred 10,000 of her
failed to establish that it was deceived into granting the shares to Margo. On June 23, 1990, a special
loans because of respondents’ misrepresentations stockholders’ meeting of Margo was held, where a new
and/or insidious actions. Quite the contrary, board of directors was elected. 15 That same day, the
circumstances indicate the weakness of its submission. newly-elected board elected a new set of officers. Raul
First, petitioner does not deny that the ₱5 million loan Gala was elected as chairman, president and general
represented the consolidation of two loans, 31 granted manager. During the meeting, the board approved
long before the bank required the individual several actions, including the commencement of
respondents to execute the Promissory Note, Trust proceedings to annul certain dispositions of Margo’s
Receipt Agreement, Quedan or Deed of Assignment. property made by Alicia Gala. The board also resolved
Hence, no words, acts or machinations arising from any to change the name of the corporation to MRG
of those instruments could have been used by them Management and Development Corporation. Similarly,
prior to or simultaneous with the execution of the a special stockholders’ meeting of Ellice was held on
contract, or even as some accident or particular of the August 24, 1990 to elect a new board of directors. In the
58 obligation. ensuing organizational meeting LAW
CORPORATION later CASE
that day, a new| set
DIGESTS 1
Second, petitioner bank was in a position to verify for of corporate officers was elected. Likewise, Raul Gala
itself the solvency and trustworthiness of respondent was elected as chairman, president and general
corporation. In fact, ordinary business prudence manager. On March 27, 1990, respondents filed against
required it to do so before granting the multimillion petitioners with the Securities and Exchange
loans. It is of common knowledge that, as a matter of Commission (SEC) a petition for the appointment of a
practice, banks conduct exhaustive investigations of the management committee or receiver, accounting and
financial standing of an applicant debtor, as well as restitution by the directors and officers, and the
appraisals of collaterals offered as securities for loans to dissolution of Ellice Agro-Industrial Corporation for
ensure their prompt and satisfactory payment. To alleged mismanagement, diversion of funds, financial
uphold petitioner’s cry of fraud when it failed to verify losses and the dissipation of assets, docketed as SEC
the existence of the goods covered by the Trust Receipt Case No. 3747.
Agreement and the Quedan is to condone its SEC rendered a Joint Decision in SEC Cases Nos. 3747
negligence. and 4027, the dispositive portion of which states:
1. Dismissing the petition in SEC Case No. 3747,
42. G.R. No. 156819               December 11, 2003 Accordingly, appellees Alicia Gala and Guia G. Domingo
ALICIA E. GALA, GUIA G. DOMINGO and RITA G. are ordered as follows:
BENSON, petitioners,  (1) jointly and solidarily pay ELLICE and/or MARGO the
vs. amount of P700,000.00 representing the consideration
ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO for the unauthorized sale of a parcel of land to Lucky
MANAGEMENT AND DEVELOPMENT CORPORATION, Homes and Development Corporation (Exhs. "N" and
RAUL E. GALA, VITALIANO N. AGUIRRE II, ADNAN V. "CCC");
ALONTO, ELIAS N. CRESENCIO, MOISES S. MANIEGO, (2) jointly and severally pay ELLICE and MARGO the
RODOLFO proceeds of sales of agricultural products averaging
P120,000.00 per month from February 17, 1988;
FACTS: (3) jointly and severally indemnify the appellants
On March 28, 1979, the spouses Manuel and Alicia Gala, P90,000.00 as attorney’s fees;
their children Guia Domingo, Ofelia Gala, Raul Gala, and (4) jointly and solidarily pay the costs of suit;
Rita Benson, and their encargados  Virgilio Galeon and
Julian Jader formed and organized the Ellice Agro-
ISSUE:
 WHETHER OR NOT THE LOWER COURT ERRED IN NOT any evidence to show how the separate juridical entities
PIERCING THE VEILS OF CORPORATE FICTION OF of Ellice and Margo were used by the respondents to
RESPONDENTS CORPORATIONS ELLICE AND MARGO commit fraudulent, illegal or unjust acts. Hence, this
contention, too, must fail.
RULING:
NO. The petitioners’ first contention in support of this 43. G.R. No. 125986 January 28, 1999
theory is that the purposes for which Ellice and Margo LUXURIA HOMES, INC., and/or AIDA M.
were organized should be declared as illegal and POSADAS, petitioners, vs.
contrary to public policy. They claim that the HONORABLE COURT OF APPEALS, JAMES BUILDER
respondents never pursued exemption from land CONSTRUCTION and/or JAIME T. BRAVO, respondents.
reform coverage in good faith and instead merely used
the corporations as tools to circumvent land reform
FACTS:
laws and to avoid estate taxes. Specifically, they point
out that respondents have not shown that the transfers Petitioner Aida M. Posadas and her two (2) minor
of the land in favor of Ellice were executed in children co-owned a 1.6 hectare property in Sucat,
compliance with the requirements of Section 13 of R.A. Muntinlupa, which was occupied by squatters.
3844.26 Furthermore, they alleged that respondent Petitioner Posadas entered into negotiations with
corporations were run without any of the conventional private respondent Jaime T. Bravo regarding the
corporate formalities. 27 development of the said property into a residential
subdivision. On May 3, 1989, she authorized private
At the outset, the Court holds that petitioners’
respondent to negotiate with the squatters to leave the
contentions impugning the legality of the purposes for
said property. With a written authorization, respondent
which Ellice and Margo were organized, amount to
Bravo buckled down to work and started negotiations
collateral attacks which are prohibited in this
with the squatters.
jurisdiction. 28
Meanwhile, some seven (7) months later, on December
The best proof of the purpose of a corporation is its
11, 1989, petitioner Posadas and her two (2) children,
articles of incorporation and by-laws. The articles of
through a Deed of Assignment, assigned the said
incorporation must state the primary and secondary
property to petitioner Luxuria Homes, Inc., purportedly
purposes of the corporation, while the by-laws outline
for organizational and tax avoidance purposes.
the administrative organization of the corporation,
Respondent Bravo signed as one of the witnesses to the
59 which, in turn, is supposed to insure or facilitate the
execution of theCORPORATION LAW CASE
Deed of Assignment DIGESTS
and the | 1of
Articles
accomplishment of said purpose. 29
Incorporation of petitioner Luxuria Homes, Inc.
In the case at bar, a perusal of the Articles of
Then sometime in 1992, the harmonious and congenial
Incorporation of Ellice and Margo shows no sign of the
relationship of petitioner Posadas and respondent
allegedly illegal purposes that petitioners are
Bravo turned sour when the former supposedly could
complaining of. It is well to note that, if a corporation’s
not accept the management contracts to develop the
purpose, as stated in the Articles of Incorporation, is
1.6 hectare property into a residential subdivision, the
lawful, then the SEC has no authority to inquire whether
latter was proposing. In retaliation, respondent Bravo
the corporation has purposes other than those stated,
demanded payment for services rendered in connection
and mandamus will lie to compel it to issue the
with the development of the land.
certificate of incorporation. 
The trial court declared petitioner Posadas in default
Thus, even if Ellice and Margo were organized for the
and allowed the private respondents to present their
purpose of exempting the properties of the Gala
evidence ex-parte. On March 8, 1994, it ordered
spouses from the coverage of land reform legislation
petitioner Posadas, jointly and in solidum with
and avoiding estate taxes, we cannot disregard their
petitioner Luxuria Homes, Inc.
separate juridical personalities.
Finally, the petitioners pray that the veil of corporate
ISSUE:
fiction that shroud both Ellice and Margo be pierced,
consistent with their earlier allegation that both Can petitioner Luxuria Homes, Inc., be held liable to
corporations were formed for purposes contrary to law private respondents for the transactions supposedly
and public policy. In sum, they submit that the entered into between petitioner Posadas and private
respondent corporations are mere business conduits of respondents?
the deceased Manuel Gala and thus may be disregarded
to prevent injustice, the distortion or hiding of the truth RULING:
or the "letting in" of a just defense. 46
NO. The Court hold that respondent Court of Appeals
However, to warrant resort to the extraordinary remedy committed a reversible error when it upheld the factual
of piercing the veil of corporate fiction, there must be finding of the trial court that petitioners' liability was
proof that the corporation is being used as a cloak or aggravated by the fact that Luxuria Homes, Inc., was
cover for fraud or illegality, or to work injustice, 47 and formed by petitioner Posadas after demand for
the petitioners have failed to prove that Ellice and payment had been made, evidently for her to evade
Margo were being used thus. They have not presented payment of her obligation, thereby showing that the
 transfer of her property to Luxuria Homes, Inc., was in FACTS:
fraud of creditors. other benefits under existing laws and/or separation
We easily glean from the record that private pay.
respondents sent demand letters on 21 August 1991 On October 21, 1987, PIF, through its General Manager,
and 14 September 1991, or more than a year and a half was notified about the complaint and summons for the
after the execution of the Deed of Assignment on 11 hearing set for November 6, 1987. The hearing was re-
December 1989, and the issuance of the Articles of set for November 27, 1987 for failure of respondents to
Incorporation of petitioner Luxuria Homes on 26 appear. On November 30, 1987 respondents
January 1990. And, the transfer was made at the time (petitioners herein) moved for the cancellation of the
the relationship between petitioner Posadas and private hearing scheduled on November 6, 1987 so that they
respondents was supposedly very pleasant. In fact the could engage a counsel to properly represent them
Deed of Assignment dated 11 December 1989 and the preferably on November 17, 1987.
Articles of Incorporation of Luxuria Homes, Inc., issued
Decision was rendered by the labor arbiter the
26 January 1990 were both signed by respondent Bravo
dispositive part of which reads as follows:
himself as witness. It cannot be said then that the
incorporation of petitioner Luxuria Homes and the IN VIEW OF THE FOREGOING CONSIDERATION,
eventual transfer of the subject property to it were in respondent Philippine Inter-Fashion and its
fraud of private respondents as such were done with officers Mr. Jaime Pabalan and Mr. Eduardo
the full knowledge of respondent Bravo himself. Lagdameo are hereby ordered to:
Besides petitioner Posadas is not the majority 1. reinstate the sixty two (62) complainants to
stockholder of petitioner Luxuria Homes, Inc., as their former or equivalent position without loss
erroneously stated by the lower court. The Articles of of seniority rights and privileges;
Incorporation of petitioner Luxuria Homes, Inc., clearly 2. to pay, jointly and severally, their backwages
show that petitioner Posadas owns approximately 33% and other benefits from the time they were
only of the capital stock. Hence petitioner Posadas dismissed up to the time they are actually
cannot be considered as an alter ego of petitioner reinstated, the computation to be based from
Luxuria Homes, Inc. the latest minimum wage law at the time of
To disregard the separate juridical personality of a their dismissal. (See attached Annex "A" of
corporation, the wrongdoing must be clearly and complainants' position paper.)
convincingly established. It cannot be presumed. This is
60 elementary. Thus in Bayer-Roxas v. Court of CORPORATION LAW CASE DIGESTS | 1
ISSUE:
Appeals,17 we said that the separate personality of the
corporation may be disregarded only when the Whether arbiter and the nlrc committed a grave abuse
corporation is used as a cloak or cover for fraud or of discretion in adjudging petitioners herein as jointly
illegality, or to work injustice, or where necessary for and severally liable with Philippine inter-fashion, Inc. to
the protection of the creditors. Accordingly in Del pay the judgment debt.
Roscrrio v. NLRC,18 where the Philsa International
Placement and Services Corp. was organized and RULING:
registered with the POEA in 1981, several years before YES. The settled rule is that the corporation is vested by
the complainant was filed a case in 1985, we held that law with a personality separate and distinct from the
this cannot imply fraud. persons composing it, including its officers as well as
Obviously in the instant case, private respondents failed from that of any other legal entity to which it may be
to show proof that petitioner Posadas acted in bad related. Thus, a company manager acting in good faith
faith. Consequently since private respondents failed to within the scope of his authority in terminating the
show that petitioner Luxuria Homes, Inc., was a party to services of certain employees cannot be held personally
any of the supposed transactions, not even to the liable for damages. 2 Mere ownership by a single
agreement to negotiate with and relocate the squatters, stockholder or by another corporation of all or nearly all
it cannot be held liable, nay jointly and in solidum, to capital stocks of the corporation is not by itself
pay private respondents. In this case since it was sufficient ground for disregarding the separate
petitioner Aida M. Posadas who contracted respondent corporate personality. 3
Bravo to render the subject services, only she is liable to As a general rule, officers of a corporation are not
pay the amounts adjudged herein. personally liable for their official acts unless it is shown
that they have exceeded their authority. 4 However, the
44. G.R. No. 89879               April 20, 1990 legal fiction that a corporation has a personality
JAIME PABALAN AND EDUARDO separate and distinct from stockholders and members.
LAGDAMEO, petitioners, vs. In this particular case complainants did not allege or
NATIONAL LABOR RELATIONS COMMISSION, LABOR show that petitioners, as officers of the corporation
ARBITER AMBROSIO B. SISON, ELIZABETH RODEROS, deliberately and maliciously designed to evade the
ET AL., and THE SHERIFF OF THE NATIONAL LABOR financial obligation of the corporation to its employees,
RELATIONS COMMISSION, respondents. or used the transfer of the employees as a means to
perpetrate an illegal act or as a vehicle for the evasion
 of existing obligations, the circumvention of statutes, or merely a legal fiction for purposes of convenience and
to confuse the legitimate issues. to subserve the ends of justice. This fiction cannot be
In this particular case complainants did not allege or extended to a point beyond its reason and
show that petitioners, as officers of the corporation policy. 20 Where, as in this case, the corporate fiction
deliberately and maliciously designed to evade the was used as a means to perpetrate a social injustice or
financial obligation of the corporation to its employees, as a vehicle to evade obligations or confuse the
or used the transfer of the employees as a means to legitimate issues, it would be discarded and the two (2)
perpetrate an illegal act or as a vehicle for the evasion corporations would be merged as one, the first being
of existing obligations, the circumvention of statutes, or merely considered as the instrumentality, agency,
to confuse the legitimate issues. conduit or adjunct of the other. 21
In this particular case, there was much confusion as to
the identity of Capulso's employer - whether it was
45. G.R. No. 117963 February 11, 1999
AZCOR or Filipinas Paso; but, for sure, it was petitioners'
AZCOR MANUFACTURING INC., FILIPINAS PASO and/or own making, as shown by the following: First, Capulso
ARTURO ZULUAGA/Owner, petitioners,  had no knowledge that he was already working under
vs. petitioner Filipinas Paso since he contained to retain his
NATIONAL LABOR RELATIONS COMMISSION (NLRC) AZCOR Identification card; Second, his payslips
AND CANDIDO CAPULSO, respondents. contained the name of AZCOR giving the impression
that AZCOR was paying his salary; Third, he was paid the
FACTS: same salary and he performed the same kind of job, in
the same work area, in the same location, using the
Candido Capuslo file with the Labor Arbiter a complaint same tools and under the same supervisor; Fourth,
for constructive illegal dismissal and illegal deduction of there was no gap in his employment as he continued to
P50.00 per day for the period April to September 1989. work from the time he was hired up to the last day of
Petitioners Azcor Manufacturing, Inc. (AZCOR) and his work; Fifth, the casting department of AZCOR where
Arturo Zuluaga who were respondents before the Labor Capulso was working was abolished when he, together
Arbiter (Filipinas Paso was not yet a party then in that with six (6) others, transferred to Filipinas Paso;
case) moved to dismiss the complaint on the ground and Sixth, the employment contract was signed by an
that there was no employer-employee relationship AZCOR personnel officer, which showed that Capulso
between AZCOR and herein respondent Capulso; .that was being hired from 1 March 1990 to 31 August 1990
the latter became an employee of Filipinas Paso by AZCOR to do CORPORATION
jobs for FilipinasLAW
Paso. TheDIGESTS
employment
61 effective 1 March 1996 but voluntarily resigned there CASE |1
contract provided in part:
from a year after, Capulso later amended his complaint
by impleading Filipinas Paso as additional respondent The contract is for a specific job contract only and
before the Labor Arbiter. shall be effective for the period covered, unless
sooner terminated when the job contract is
On 29 December 1992 the Labor Arbiter rendered a completed earlier or withdrawn by client, or when
decision dismissing the complaint for illegal dismissal for the employee is dismissed for just and lawful causes
lack of merit, but ordered AZCOR and/or Arturo Zuluaga provided by law and the company's rules and
to refund to Capulso the sum of P200.00 representing regulations, in which case the employment contract
the amount illegally deducted from his salary. will automatically terminate.
On appeal by Capulso, docketed as NLRC CA No. As correctly observed by the NLRC, the contract was
004476-93 (NLRC NCR 00-09-05271-91), "Capulso v. only for six (6) months, which could pass either as a
Azcor Manufacturing Inc., Filipinas Paso and/or Arturo probationary period or a job contracting, the
Zuluaga/owner," the NLRC modified the Labor Arbiter's completion of which automatically terminated the
decision by: (a) declaring the dismissal of Capulso as employment. Observe further, however, that
illegal for lack of just and valid cause; (b) ordering respondent continued working even after the lapse of
petitioners to reinstate Capulso to his former or the period in the contract - for whom it was not clear. It
equivalent position without loss of Seniority rights and may be asked: Was the six (6)-month period
without diminution of benefits, and, (c) ordering probationary in nature, in which case, after the lapse of
petitioners to jointly and solidarily pay Capulso his the period he became a regular employee of Filipinas
backwages computed from the time of his dismissal up Paso? Or was the period job-contracting in character, in
to the date of his actual reinstatement. which case, after the period he was deemed to have
come back to AZCOR?
ISSUE: Interestingly, petitioners likewise argue that it was
Whether the NLRC committed grave abuse of discretion grave abuse of discretion for the NLRC to hold them
in holding that petitioners jointly and solidarily liable to solidarily, liable to Capulso when the latter himself
Capulso for back wages. testified that he was not even an employee of Filipinas
Paso. 22 After causing much confusion, petitioners have
the temerity to use as evidence the ignorance of
RULING: Capulso in identifying his true employer. It is evident
NO. The doctrine that a corporation is a legal entity or a from the foregoing discussion that Capulso was led into
person in law distinct from the persons composing it is believing that while he was working with Filipinas Paso,
 his real employer was AZCOR. Petitioners never dealt Whether the court of appeals seriously erred in
with him openly and in good faith, nor was he informed declaring that petitioners prince transport, Inc. and Mr.
of the developments within the company, i.e., his Renato Claros and Lubas transport are one and the
alleged transfer to Filipinas Paso and the closure of same corporation and thus, liable in solidum to
AZCOR's manufacturing operations beginning 1 March respondents.
1990. 23 Understandably, he sued AZCOR alone and was
constrained to implead Filipinas Paso as additional
RULING:
respondent only when it became apparent that the
latter also appeared to be his employer. NO. The Court agrees with the CA that Lubas is a mere
agent, conduit or adjunct of PTI. A settled formulation
of the doctrine of piercing the corporate veil is that
46. G.R. No. 167291               January 12, 2011 when two business enterprises are owned, conducted
PRINCE TRANSPORT, Inc. and Mr. RENATO and controlled by the same parties, both law and equity
CLAROS, Petitioners,  will, when necessary to protect the rights of third
vs. parties, disregard the legal fiction that these two
DIOSDADO GARCIA, et al. entities are distinct and treat them as identical or as one
and the same.26 In the present case, it may be true that
Lubas is a single proprietorship and not a corporation.
FACTS:
However, petitioners’ attempt to isolate themselves
The present petition arose from various complaints filed from and hide behind the supposed separate and
by herein respondents charging petitioners with illegal distinct personality of Lubas so as to evade their
dismissal, unfair labor practice and illegal deductions liabilities is precisely what the classical doctrine of
and praying for the award of premium pay for holiday piercing the veil of corporate entity seeks to prevent
and rest day, holiday pay, service leave pay, 13th month and remedy.
pay, moral and exemplary damages and attorney's fees.
Thus, the Court agrees with the observations of the CA,
Respondents alleged in their respective position papers to wit:
and other related pleadings that they were employees
As correctly pointed out by petitioners, if Lubas were
of Prince Transport, Inc. (PTI), a company engaged in
truly a separate entity, how come that it was Prince
the business of transporting passengers by land;
Transport who made the decision to transfer its
respondents were hired either as drivers, conductors,
employees to the former? Besides, Prince Transport
mechanics or inspectors, except for respondent
62 never regarded CORPORATION
Lubas TransportLAW as aCASE
separate entity.
DIGESTS | 1In
Diosdado Garcia (Garcia), who was assigned as
the aforesaid letter, it referred to said entity as "Lubas
Operations Manager; in addition to their regular
operations." Moreover, in said letter, it did not transfer
monthly income, respondents also received
the employees; it "assigned" them. Lastly, the existing
commissions equivalent to 8 to 10% of their wages;
funds and 201 file of the employees were turned over
sometime in October 1997, the said commissions were
not to a new company but a "new management." 27
reduced to 7 to 9%; this led respondents and other
employees of PTI to hold a series of meetings to discuss The Court also agrees with respondents that if Lubas is
the protection of their interests as employees. PTI indeed an entity separate and independent from PTI
caused the transfer of all union members and why is it that the latter decides which employees shall
sympathizers to one of its sub-companies, Lubas work in the former?
Transport (Lubas); despite such transfer, the schedule of What is telling is the fact that in a memorandum issued
drivers and conductors, as well as their company by PTI, dated January 22, 1998, Petitioner Company
identification cards, were issued by PTI; the daily time admitted that Lubas is one of its sub-companies. 28 In
records, tickets and reports of the respondents were addition, PTI, in its letters to its employees who were
also filed at the PTI office; and, all claims for salaries transferred to Lubas, referred to the latter as its "New
were transacted at the same office; later, the business City Operations Bus."29
of Lubas deteriorated because of the refusal of PTI to Moreover, petitioners failed to refute the contention of
maintain and repair the units being used therein, which respondents that despite the latter’s transfer to Lubas
resulted in the virtual stoppage of its operations and of their daily time records, reports, daily income
respondents' loss of employment. remittances of conductors, schedule of drivers and
The Labor Arbiter ruled that petitioners are not guilty of conductors were all made, performed, filed and kept at
unfair labor practice in the absence of evidence to show the office of PTI. In fact, respondents’ identification
that they violated respondents’ right to self- cards bear the name of PTI.
organization. The Labor Arbiter also held that Lubas is It may not be amiss to point out at this juncture that in
the respondents’ employer and that it (Lubas) is an two separate illegal dismissal cases involving different
entity which is separate, distinct and independent from groups of employees transferred by PTI to other
PTI. Nonetheless, the Labor Arbiter found that Lubas is companies, the Labor Arbiter handling the cases found
guilty of illegally dismissing respondents from their that these companies and PTI are one and the same
employment entity; thus, making them solidarily liable for the
payment of backwages and other money claims
ISSUE: awarded to the complainants therein.
 Reyno’s decision15 of September 20, 2002 in favor of
47. G.R. No. 177493 Livesey.
ERIC GODFREY STANLEY LIVESEY, Petitioner, vs. CA disagreed with the NLRC finding that the
BINSWANGER PHILIPPINES, INC. and KEITH respondents are jointly and severally liable with CBB in
ELLIOT, Respondent. the case.

FACTS: ISSUE:
In December 2001, petitioner Eric Godfrey Stanley Whether the CA erred in not applying the doctrine of
Livesey filed a complaint for illegal dismissal with money piercing the veil of corporate fiction to the case.
claims4against CBB Philippines Strategic Property
Services, Inc. (CBB) and Paul Dwyer. CBB was a domestic RULING:
corporation engaged in real estate brokerage and
YES. It has long been settled that the law vests a
Dwyer was its President.
corporation with a personality distinct and separate
Livesey alleged that on April 12, 2001, CBB hired him as from its stockholders or members. In the same vein, a
Director and Head of Business Space Development, with corporation, by legal fiction and convenience, is an
a monthly salary of US$5,000.00; shareholdings in CBB’s entity shielded by a protective mantle and imbued by
offshore parent company; and other benefits. In August law with a character alien to the persons comprising
2001, he was appointed as Managing Director and his it.43 Nonetheless, the shield is not at all times
salary was increased to US$16,000.00 a month. impenetrable and cannot be extended to a point
Allegedly, despite the several deals for CBB he drew up, beyond its reason and policy. Circumstances might deny
CBB failed to pay him a significant portion of his salary. a claim for corporate personality, under the "doctrine of
For this reason, he was compelled to resign on piercing the veil of corporate fiction."
December 18, 2001. He claimed CBB owed him
Piercing the veil of corporate fiction is an equitable
US$23,000.00 in unpaid salaries.
doctrine developed to address situations where the
Thereafter, the parties entered into a compromise separate corporate personality of a corporation is
agreement7 which LA Reyno approved in an order dated abused or used for wrongful purposes. 44 Under the
November 6, 2002.8 Under the agreement, Livesey was doctrine, the corporate existence may be disregarded
to receive US$31,000.00 in full satisfaction of LA where the entity is formed or used for non-legitimate
Reyno’s decision, broken down into US$13,000.00 to be purposes, such as to evade a just and due obligation, or
63 paid by CBB to Livesey or his authorized representative CORPORATION LAW CASE DIGESTS | 1
to justify a wrong, to shield or perpetrate fraud or to
upon the signing of the agreement; US$9,000.00 on or carry out similar or inequitable considerations, other
before June 30, 2003; and US$9,000.00 on or before unjustifiable aims or intentions,45 in which case, the
September 30, 2003. Further, the agreement provided fiction will be disregarded and the individuals
that unless and until the agreement is fully satisfied, composing it and the two corporations will be treated
CBB shall not: (1) sell, alienate, or otherwise dispose of as identical.46
all or substantially all of its assets or business; (2)
In the present case, we see an indubitable link between
suspend, discontinue, or cease its entire, or a
CBB’s closure and Binswanger’s incorporation. CBB
substantial portion of its business operations; (3)
ceased to exist only in name; it re-emerged in the
substantially change the nature of its business; and (4)
person of Binswanger for an urgent purpose
declare bankruptcy or insolvency. Livesey then filed a
motion for the issuance of an alias writ of — to avoid payment by CBB of the last two installments
execution,10 alleging that in the process of serving of its monetary obligation to Livesey, as well as its other
respondents the writ, he learned "that respondents, in a financial liabilities. Freed of CBB’s liabilities, especially
clear and willful attempt to avoid their liabilities to that owing to Livesey, Binswanger can continue, as it did
complainant x x x have organized another corporation, continue, CBB’s real estate brokerage business.
[Binswanger] Philippines, Inc."11 He claimed that there Livesey’s evidence, whose existence the respondents
was evidence showing that CBB and Binswanger never denied, converged to show this continuity of
Philippines, Inc. (Binswanger) are one and the same business operations from CBB to Binswanger.1âwphi1 It
corporation, pointing out that CBB stands for was not just coincidence that Binswanger is engaged in
Chesterton Blumenauer Binswanger.12 Invoking the the same line of business CBB embarked on: (1) it even
doctrine of piercing the veil of corporate fiction, Livesey holds office in the very same building and on the very
prayed that an alias writ of execution be issued against same floor where CBB once stood; (2) CBB’s key officers,
respondents Binswanger and Keith Elliot, CBB’s former Elliot, no less, and Catral moved over to Binswanger,
President, and now Binswanger’s President and Chief performing the tasks they were doing at CBB; (3)
Executive Officer (CEO). notwithstanding CBB’s closure, Binswanger’s Web
Livesey filed an appeal which the National Labor Editor (Young), in an e-mail correspondence, supplied
Relations Commission (NLRC) granted in its the information that Binswanger is "now known" as
decision14 dated September 7, 2005. It reversed LA either CBB (Chesterton Blumenauer Binswanger or as
Laderas’ March 22, 2004 order and declared the Chesterton Petty, Ltd., in the Philippines; (4) the use of
respondents jointly and severally liable with CBB for LA Binswanger of CBB’s paraphernalia (receiving stamp) in
connection with a labor case where Binswanger was
 summoned by the authorities, although Elliot claimed manufacturing and exportation of all kinds of garments
that he bought the item with his own money; and (5) of whatever kind and description 5 and utilized the same
Binswanger’s takeover of CBB’s project with the PNB. machineries and equipment previously used by BET. Its
While the ostensible reason for Binswanger’s incorporators and directors included the Lipat spouses
establishment is to continue CBB’s business operations who owned a combined 300 shares out of the 420
in the Philippines, which by itself is not illegal, the close shares subscribed, Teresita Lipat who owned 20 shares,
proximity between CBB’s disestablishment and and other close relatives and friends of the
Binswanger’s coming into existence points to an Lipats.6 Estelita Lipat was named president of BEC, while
unstated but urgent consideration which, as we earlier Teresita became the vice-president and general
noted, was to evade CBB’s unfulfilled financial manager.
obligation to Livesey under the compromise The promissory notes, export bills, and trust receipt
agreement.47 eventually became due and demandable.
This underhanded objective, it must be stressed, can Unfortunately, BEC defaulted in its payments.
only be attributed to Elliot as it was apparent that
Binswanger’s stockholders had nothing to do with ISSUE:
Binswanger’s operations as noted by the NLRC and
Whether the lower court erred in holding that the
which the respondents did not deny. 48 Elliot was well
doctrine of piercing the veil of corporate fiction applies
aware of the compromise agreement between Livesey
in this case.
and CBB, as he "agreed and accepted" the terms of the
agreement49 for CBB. He was also well aware that the
last two installments of CBB’s obligation to Livesey were RULING:
due on June 30, 2003 and September 30, 2003. These NO. The Court finds that the evidence on record
installments were not met and the reason is that after demolishes, rather than buttresses, petitioners'
the alleged sale of the majority of CBB’s shares of stock, contention that BET and BEC are separate business
it closed down. entities. Note that Estelita Lipat admitted that she and
her husband, Alfredo, were the owners of BET 14 and
48. G.R. No. 142435             April 30, 2003 were two of the incorporators and majority
stockholders of BEC.15 It is also undisputed that Estelita
ESTELITA BURGOS LIPAT and ALFREDO
Lipat executed a special power of attorney in favor of
LIPAT, petitioners, 
her daughter, Teresita, to obtain loans and credit lines
64 vs. CORPORATION LAW
16 CASE DIGESTS |1
from Pacific Bank on her behalf.  Incidentally, Teresita
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS,
was designated as executive-vice president and general
RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the
manager of both BET and BEC, respectively. 17 We note
Heirs of EUGENIO D. TRINIDAD, respondents.
further that: (1) Estelita and Alfredo Lipat are the
owners and majority shareholders of BET and BEC,
FACTS: respectively;18 (2) both firms were managed by their
Petitioners, the spouses Alfredo Lipat and Estelita daughter, Teresita;19 (3) both firms were engaged in the
Burgos Lipat, owned "Bela's Export Trading" (BET), a garment business, supplying products to "Mystical
single proprietorship with principal office at No. 814 Fashion," a U.S. firm established by Estelita Lipat; (4)
Aurora Boulevard, Cubao, Quezon City. BET was both firms held office in the same building owned by
engaged in the manufacture of garments for domestic the Lipats;20 (5) BEC is a family corporation with the
and foreign consumption. The Lipats also owned the Lipats as its majority stockholders; (6) the business
"Mystical Fashions" in the United States, which sells operations of the BEC were so merged with those of
goods imported from the Philippines through BET. Mrs. Mrs. Lipat such that they were practically
Lipat designated her daughter, Teresita B. Lipat, to indistinguishable; (7) the corporate funds were held by
manage BET in the Philippines while she was managing Estelita Lipat and the corporation itself had no visible
"Mystical Fashions" in the United States. assets; (8) the board of directors of BEC was composed
of the Burgos and Lipat family members; 21 (9) Estelita
In order to facilitate the convenient operation of BET,
had full control over the activities of and decided
Estelita Lipat executed on December 14, 1978, a special
business matters of the corporation;22 and that (10)
power of attorney appointing Teresita Lipat as her
Estelita Lipat had benefited from the loans secured from
attorney-in-fact to obtain loans and other credit
Pacific Bank to finance her business abroad 23 and from
accommodations from respondent Pacific Banking
the export bills secured by BEC for the account of
Corporation (Pacific Bank). She likewise authorized
"Mystical Fashion."24 It could not have been coincidental
Teresita to execute mortgage contracts on properties
that BET and BEC are so intertwined with each other in
owned or co-owned by her as security for the
terms of ownership, business purpose, and
obligations to be extended by Pacific Bank including any
management. Apparently, BET and BEC are one and the
extension or renewal thereof.
same and the latter is a conduit of and merely
On September 5, 1979, BET was incorporated into a succeeded the former. Petitioners' attempt to isolate
family corporation named Bela's Export Corporation themselves from and hide behind the corporate
(BEC) in order to facilitate the management of the personality of BEC so as to evade their liabilities to
business. BEC was engaged in the business of Pacific Bank is precisely what the classical doctrine of
 piercing the veil of corporate entity seeks to prevent Ruling: Yes. After a careful and painstaking review of
and remedy. In our view, BEC is a mere continuation the evidence on record, we support the NLRCs findings.
and successor of BET, and petitioners cannot evade The labor arbiters conclusion -- that Mallorca Taxi and R
their obligations in the mortgage contract secured
& E Transport, Inc., are one and the same entity -- is
under the name of BEC on the pretext that it was signed
negated by the documentary evidence presented by
for the benefit and under the name of BET. We are thus
constrained to rule that the Court of Appeals did not err petitioners. Their evidence sufficiently shows the
when it applied the instrumentality doctrine in piercing following facts: 1) R & E Transport, Inc., was established
the corporate veil of BEC. only in 1978; 2) Honorio Enriquez, its president, was not
On the second issue, petitioners contend that their a stockholder of La Mallorca Taxi; and 3) none of the
mortgaged property should not be made liable for the stockholders of the latter company hold stocks in the
subsequent credit lines and loans incurred by BEC former.
because, first, it was not covered by the mortgage
contract of BET which only covered the loan of Furthermore, basic is the rule that the corporate veil
P583,854.00 and which allegedly had already been paid; may be pierced only if it becomes a shield for fraud,
and, second, it was secured by Teresita Lipat without illegality or inequity committed against a third
any authorization or board resolution of BEC.
person.We have thus cautioned against the inordinate
application of this doctrine. In Philippine National Bank
49. R&E Transport, Inc. & Honorio Enriquez vs. Avelina v. Andrada Electric & Engineering Company,[25] we said:
Latag, G.R. No. 155214, February 13, 2004
x x x [A]ny application of the doctrine of piercing the
Facts: Pedro Latag was a regular employee of La corporate veil should be done with caution. A court
Mallorca Taxi since March 1, 1961. When La Mallorca should be mindful of the milieu where it is to be
ceased from business operations, Latag transferred to R applied. It must be certain that the corporate fiction
& E Transport, Inc. He was receiving an average daily was misused to such an extent that injustice, fraud, or
salary of five hundred pesos (P500.00) as a taxi driver. crime was committed against another, in disregard of its
Latag got sick in January 1995 and was forced to apply rights. The wrongdoing must be clearly and convincingly
for partial disability with the SSS, which was granted. established; it cannot be presumed. Otherwise, an
When he recovered, he reported for work in September injustice that was never unintended may result from an
65 1998 but was no longer allowed to continue working on CORPORATION LAW CASE DIGESTS | 1
erroneous application.
account of his old age. Latag thus asked Felix Fabros,
the administrative officer of [petitioners], for his x x x x x x x x x
retirement pay pursuant to Republic Act 7641 but he
The question of whether a corporation is a mere alter
was ignored. 
ego is one of fact. Piercing the veil of corporate fiction
Thus, on December 21, 1998, Latag filed a case for may be allowed only if the following elements concur:
payment of his retirement pay before the NLRC. Latag (1) control -- not mere stock control, but complete
however died on April 30, 1999. Subsequently, his wife, domination -- not only of finances, but of policy and
Avelina Latag, substituted him. On January 10, 2000, the business practice in respect to the transaction attacked,
Labor Arbiter rendered a decision in favor of Latag.  must have been such that the corporate entity as to this
transaction had at the time no separate mind, will or
Petitioners do not dispute the fact that the late Pedro existence of its own; (2) such control must have been
M. Latag is entitled to retirement benefits. Rather, the used by the defendant to commit a fraud or a wrong to
bone of contention is the number of years that he perpetuate the violation of a statutory or other positive
should be credited with in computing those benefits. On legal duty, or a dishonest and an unjust act in
the one hand, we have the findings of the labor contravention of plaintiffs legal right; and (3) the said
arbiter, which the CA affirmed. According to those control and breach of duty must have proximately
findings, the 23 years of employment of Pedro with La caused the injury or unjust loss complained of.
Mallorca Taxi must be added to his 14 years with R & E
Transport, Inc., for a total of 37 years. Respondent has not shown by competent evidence that
one taxi company had stock control and complete
On the other, we also have the findings of the NLRC that domination over the other or vice versa. In fact, no
Pedro must be credited only with his service to R & E evidence was presented to show the alleged renaming
Transport, Inc., because the evidence shows that the of La Mallorca Taxi to R & E Transport, Inc. The seven-
aforementioned companies are two different entities. year gap between the time the former closed shop and
the date when the latter came into being also casts
Issue: Whether Pedro must be credited only with his
doubt on any alleged intention of petitioners to commit
service to R & E Transport, Inc.
 a wrong or to violate a statutory duty. This lacuna in the 2. Such control must, have been used by the
evidence compels us to reverse the Decision of the CA defendant to commit fraud or wrong, to
affirming the labor arbiters finding of fact that the basis perpetrate the violation of statutory or other
for computing Pedros retirement pay should be 37 positive legal duty, on dishonest and unjust acts
years, instead of only 14 years. in contravention of plaintiff’s legal right; and

50. Heirs of Durano Sr. vs Spouses Uy 3. The aforesaid control and breach of duty must
344 SCRA 238 [GR No. 136456 October 24, 2000] proximately cause the injury or unjust loss
complained of.
Facts: As far back as August 1970, a 128 hectare of land
located in the barrios of Dunga and Cahumayhumayan, The absence of any one of these elements prevents the
Danao City. On December 27, 1973, the late piercing the corporate veil. In applying the
Congressman Ramon Durano Sr. together with his son instrumentality or alter ego doctrine, the courts are
Ramon Durano III, and the latter’s wide Elizabeth concerned with reality not form, with how the
Hotchkins-Durano, instituted an action for damages corporation operated and the individual defendants
against spouses Angeles Sepulveda Uy et al. before relationship to that operation.
branch XVII of the then Court of First Instance of Cebu,
The question of whether a corporation is a mere alter
Danao City.. Herein respondents are the possessors of
the subject parcel of land which they are cultivating, it ego is purely one of fact. The Court sees no reason to
reverse the finding of the Court of Appeals. In this case,
was used to be owned by CEPCO who later sold the
same to Durano & Co. On September 15, 1990, Durano the facts show that shortly after the purported sale by
Cepco to Durano & Co., the latter sold the property to
& Co sold the disputed property to petitioner Ramon
Durano III, who procured the registration of these lands petitioner Ramon Durano III, who immediately procured
the registration of the property in his name. Obviously,
in his name under TCT no. T-103 and T-104. The
different parts of the entire land was bulldozed by the Durano & Co. was used by petitioners merely as an
instrumentality to appropriate the disputed property for
petitioner’s company resulting to the destruction of
plants and other products that were placed by the themselves.
respondents. Hence, a claim for damages was lodged 51. Pamplona Plantation vs Tinghil
66 CORPORATION LAW CASE DIGESTS | 1
against herein petitioner. The respondents presented
tax declaration covering the different areas of the parcel G.R. No. 159121. February 3, 2005
of land that is titled in each of them as proof that they
Employer-Employee Relation
are entitled for the said damages.
Prefatory Statement:
Issue: Whether or not the doctrine of piercing the veil
of corporate entity can be applied in order to make To protect the rights of labor, two corporations with
Durano & Co liable for damages. identical directors, management, office and payroll
should be treated as one entity only. A suit by the
Held: Yes. The court of appeals applied the well-
employees against one corporation should be deemed
recognized principle of piercing the corporate veil, i.e.
as a suit against the other. Also, the rights and claims of
the law will regard the act of the corporation as the act
workers should not be prejudiced by the acts of the
of its individual stockholders, when it is shown that the
employer that tend to confuse them about its corporate
corporation was used merely as an alter ego by those
identity. The corporate fiction must yield to truth and
persons in the commission of fraud or other illegal acts.
justice.
That the test in determining the applicability of the
Facts:
doctrine of piercing the veil of corporate fiction is as
follows: Sometime in 1993, [Petitioner] Pamplona Plantations
Company, Inc. (company for brevity) was organized for
1. Control, not mere majority or complete stock
the purpose of taking over the operations of the
control, but complete domination, not only of
coconut and sugar plantation of Hacienda Pamplona
finances but of policy and business practice in
located in Pamplona, Negros Oriental. It appears that
respect to the transaction attacked so that the
Hacienda Pamplona was formerly owned by a certain
corporate entity as to this transaction had at
Mr. Bower who had in his employ several agricultural
the time no separate mind, will or existence of
workers.
its own.
When the company took over the operation of
Hacienda Pamplona in 1993, it did not absorb all the
 workers of Hacienda Pamplona. Some, however, were Ruling: YES. An examination of the facts reveals that, for
hired by the company during harvest season as coconut both the coconut plantation and the golf course, there
hookers or sakador, coconut filers, coconut haulers, is only one management which the laborers deal with
coconut scoopers or lugiteros, and charcoal makers. regarding their work.[20] A portion of the plantation (also
called Hacienda Pamplona) had actually been converted
Sometime in 1995, Pamplona Plantation Leisure into a golf course and other recreational facilities. The
Corporation was established for the purpose of weekly payrolls issued by petitioner-company bore the
engaging in the business of operating tourist resorts, name Pamplona Plantation Co., Inc. [21] It is also a fact
hotels, and inns, with complementary facilities, such as that respondents all received their pay from the same
restaurants, bars, boutiques, service shops, person, Petitioner Bondoc -- the managing director of
entertainment, golf courses, tennis courts, and other the company. Since the workers were working for a firm
land and aquatic sports and leisure facilities. known as Pamplona Plantation Co., Inc., the reason they
On 15 December 1996, the Pamplona Plantation Labor sued their employer through that name was natural and
Independent Union (PAPLIU) conducted an understandable.
organizational meeting wherein several [respondents] True, the Petitioner Pamplona Plantation Co., Inc., and
who are either union members or officers participated the Pamplona Plantation Leisure Corporation appear to
in said meeting. be separate corporate entities. But it is settled that this
Upon learning that some of the [respondents] attended fiction of law cannot be invoked to further an end
the said meeting, [Petitioner] Jose Luis Bondoc, subversive of justice.[22]
manager of the company, did not allow [respondents] The principle requiring the piercing of the corporate veil
to work anymore in the plantation. mandates courts to see through the protective shroud
Thereafter, on various dates, [respondents] filed their that distinguishes one corporation from a seemingly
respective complaints with the NLRC, Sub-Regional separate one.[23] The corporate mask may be removed
Arbitration Branch No. VII, Dumaguete City against and the corporate veil pierced when a corporation is the
[petitioners] for unfair labor practice, illegal dismissal, mere alter ego of another. [24] Where badges of fraud
underpayment, overtime pay, premium pay for rest day exist, where public convenience is defeated, where a
67 CORPORATION LAW CASE DIGESTS | 1
and holidays, service incentive leave pay, damages, wrong is sought to be justified thereby, or where a
attorneys fees and 13th month pay. separate corporate identity is used to evade financial
obligations to employees or to third parties, [25] the
On 09 October 1997, [respondent] Carlito Tinghil notion of separate legal entity should be set aside [26] and
amended his complaint to implead Pamplona Plantation the factual truth upheld. When that happens, the
Leisure Corporation. corporate character is not necessarily abrogated. [27] It
continues for other legitimate objectives. However, it
Petitioners contend that the CA should have dismissed
may be pierced in any of the instances cited in order to
the case for the failure of respondents (except Carlito
promote substantial justice.
Tinghil) to implead the Pamplona Plantation Leisure
Corporation, an indispensable party, for being the true In the present case, the corporations have basically the
and real employer. Allegedly, respondents admitted in same incorporators and directors and are headed by the
their Affidavits dated February 3, 1998, [19] that they had same official. Both use only one office and one payroll
been employed by the leisure corporation and/or and are under one management. In their individual
engaged to perform activities that pertained to its Affidavits, respondents allege that they worked under
business. the supervision and control of Petitioner Bondoc -- the
common managing director of both the petitioner-
Further, as the NLRC allegedly noted in their individual
company and the leisure corporation. Some of the
Complaints, respondents specifically averred that they
laborers of the plantation also work in the golf course.
had worked in the golf course and performed related [28]
 Thus, the attempt to make the two corporations
jobs in the recreational facilities of the leisure
appear as two separate entities, insofar as the workers
corporation. Hence, petitioners claim that, as a sugar
are concerned, should be viewed as a devious but
and coconut plantation company separate and distinct
obvious means to defeat the ends of the law. Such a
from the Pamplona Plantation Leisure Corporation, the
ploy should not be permitted to cloud the truth and
petitioner-company is not the real party in interest.
perpetrate an injustice.
ISSUE: there is only one management which the
We note that this defense of separate corporate
laborers deal with regarding their work.
identity was not raised during the proceedings before
 the labor arbiter. The main argument therein raised by Facts: Petitioner spouses Lipat owned Bela’s Export
petitioners was their alleged lack of employer-employee Trading (BET) a single proprietorship engaged in the
relationship with, and power of control over, the means manufacture of garments for domestic and foreign
and methods of work of respondents because of the consumption. The spouses by virtue of an SPA
seasonal nature of the latters work.[29] appointed and authorized their daughter to obtain loan
from respondent Pacific Bank. A loan was secured and
Neither was the issue of non-joinder of indispensable as security therefore a REM was executed over the
parties raised in petitioners appeal before the NLRC.
[30]
property of the spouses. Sometime after, BET was
 Nevertheless, in its Decision [31] dated July 19, 2000, incorporated into a family corporation named Bela’s
the Commission concluded that the plantation company Export Corporation (BEC) and the loan was restructured
and the leisure corporation were two separate and in its name. Subsequent loans were obtained in behalf
distinct corporations, and that the latter was an of BEC all secured by the previous REM. BEC defaulted
indispensable party that should have been impleaded. in its payments which led to the foreclosure and sale of
Indeed, it was only after this NLRC Decision was issued the mortgaged property. The spouses moved to annul
that the petitioners harped on the separate personality the sale alleging that BEC is a distinct and separate
of the Pamplona Plantation Co., Inc., vis--vis the personality from them and that the REM was executed
Pamplona Plantation Leisure Corporation. only to secure BET’s loan. Both trial court and CA ruled
to pierce the corporate veil to hold petitioner spouses
The NLRC dismissed the Complaints because of the liable for BEC’s obligations.
alleged admission of respondents in their Affidavits that
they had been working at the golf course. However, it Issue: Whether or not the doctrine of piercing the veil
failed to appreciate the rest of their averments. Just of corporate fiction is applicable in this case.
because they worked at the golf course did not Ruling: YES. We find that the evidence on record
necessarily mean that they were not employed to do demolishes, rather than buttresses, petitioners’
other tasks, especially since the golf course was merely contention that BET and BEC are separate business
a portion of the coconut plantation. Even petitioners entities. Note that Estelita Lipat admitted that she and
admitted that respondents had been hired as coconut her husband, Alfredo, were the owners of BET and were
68 filers, coconut scoopers or charcoal makers. CORPORATION LAW CASE DIGESTS | 1
two of the incorporators and majority stockholders of
Consequently, NLRCs conclusion derived from the BEC. It is also undisputed that Estelita Lipat executed a
Affidavits of respondents stating that they were special power of attorney in favor of her daughter,
employees of the Pamplona Plantation Leisure Teresita, to obtain loans and credit lines from Pacific
Corporation alone was the result of an improper Bank on her behalf. Incidentally, Teresita was
selective appreciation of the entire evidence. designated as executive-vice president and general
Furthermore, we note that, contrary to the NLRCs manager of both BET and BEC, respectively.
findings, some respondents indicated that their It could not have been coincidental that BET and BEC
employer was the Pamplona Plantation Leisure are so intertwined with each other in terms of
Corporation, while others said that it was the Pamplona ownership, business purpose, and management.
Plantation Co., Inc. But in all these Affidavits, both the Apparently, BET and BEC are one and the same and the
leisure corporation and petitioner-company were latter is a conduit of and merely succeeded the former.
identified or described as entities engaged in the Petitioners’ attempt to isolate themselves from and
development and operation of sugar and coconut hide behind the corporate personality of BEC so as to
plantations, as well as recreational facilities such as a evade their liabilities to Pacific Bank is precisely what
golf course. These allegations reveal that petitioner the classical doctrine of piercing the veil of corporate
successfully confused the workers as to who their true entity seeks to prevent and remedy.
and real employer was. All things considered, their
faulty belief that the plantation company and the The court ruled that BEC is a mere continuation and
leisure corporation were one and the same can be successor of BET and petitioners cannot evade their
attributed solely to petitioners. It would certainly be obligations in the mortgage contract secured under the
unjust to prejudice the claims of the workers because of name of BEC on the pretext that it was signed for the
the misleading actions of their employer. benefit and under the name of BET. We are thus
constrained to rule that the Court of Appeals did not err
52. SPS. LIPAT V. PACIFIC BANKING CORPORATION when it applied the instrumentality doctrine in piercing
(G.R. NO. 142435) the corporate veil of BEC.
 53. De Leon v NLRC, 358 SCRA 275 Respondent FISI, meanwhile, denied the charge of
illegal dismissal and unfair labor practice. It argued that
Facts: On August 23, 1980, Fortune Tobacco petitioners were not dismissed from service but were
Corporation (FTC) and Fortune Integrated Services, Inc. merely placed on floating status pending re-assignment
(FISI) entered into a contract for security services where to other posts. It alleged that the temporary
the latter undertook to provide security guards for the displacement of petitioners was not due to its fault but
protection and security of the former. The petitioners was the result of the pretermination by FTC of the
were among those engaged as security guards pursuant contract for security services.
to the contract.
The Labor Arbiter found respondents liable for the
On February 1, 1991, the incorporators and charges. Rejecting FTC's argument that there was no
stockholders of FISI sold out lock, stock and barrel to a employer-employee relationship between FTC and
group of new stockholders by executing for the purpose petitioners, he ruled that FISI and FTC should be
a "Deed of Sale of Shares of Stock". On the same date, considered as a single employer. He observed that the
the Articles of Incorporation of FISI was amended two corporations have common stockholders and they
changing its corporate name to Magnum Integrated share the same business address. In addition, FISI had
Services, Inc. (MISI). A new by-laws was likewise no client other than FTC and other corporations
adopted and approved by the Securities and Exchange belonging to the group of companies owned by Lucio
Commission on June 4, 1993. Tan. The Labor Arbiter thus found respondents guilty of
union busting and illegal dismissal. He observed that not
On October 15, 1991, FTC terminated the contract for
long after the stockholders of FISI sold all their stocks to
security services which resulted in the displacement of
a new set of stockholders, FTC terminated the contract
some five hundred eighty two (582) security guards
of security services and engaged the services of two
assigned by FISI/MISI to FTC, including the petitioners in
other security agencies. FTC did not give any reason for
this case. FTC engaged the services of two (2) other
the termination of the contract. The Labor Arbiter gave
security agencies, Asian Security Agency and Ligalig
credence to petitioners' theory that respondents'
Security Services, whose security guards were posted on
precipitate termination of their employment was
October 15, 1991 to replace FISI's security guards.
intended to bust their union.Consequently, the Labor
Sometime in October 1991, the Fortune Tobacco Arbiter ordered respondents to pay petitioners their
Labor Union, an affiliate of the National Federation of backwages and separation pay, to refund their cash
Labor Unions (NAFLU), and claiming to be the bond deposit, and to pay attorney's fees.
69 bargaining agent of the security guards, sent a Notice of CORPORATION LAWandCASEsetDIGESTS
aside |the
1
On appeal, the NLRC reversed
Strike to FISI/MISI. On November 14, 1991, the
decision of the Labor Arbiter. First, it held that the Labor
members of the union which include petitioners
Arbiter erred in applying the "single employer" principle
picketed the premises of FTC. The Regional Trial Court
and concluding that there was an employer-employee
of Pasig, however, issued a writ of injunction to enjoin
relationship between FTC and FISI on one hand, and
the picket.
petitioners on the other hand. It found that at the time
On November 29, 1991, Simeon de Leon, together with of the termination of the contract of security services
sixteen (16) other complainants instituted the instant on October 15, 1991, FISI which, at that time, had been
case before the Arbitration Branch of the NLRC. The renamed Magnum Integrated Services, Inc. had a
complaint was later amended to allow the inclusion of different set of stockholders and officers from that of
other complainants. FTC. They also had separate offices. The NLRC held that
the principle of "single employer" and the doctrine of
Petitioners alleged that they were regular employees of
piercing the corporate veil could not apply under the
FTC which was also using the corporate names Fortune
circumstances. It further ruled that the proximate cause
Integrated Services, Inc. and Magnum Integrated
for the displacement of petitioners was the termination
Services, Inc. They were assigned to work as security
of the contract for security services by FTC on October
guards at the company's main factory plant, its tobacco
15, 1991. 
redrying plant and warehouse. They averred that they
performed their duties under the control and ISSUE: Whether the Labor Arbiter correctly applied the
supervision of FTC's security supervisors. Their services, doctrine of piercing the corporate veil
however, were severed in October 1991 without valid
cause and without due process. Petitioners claimed that Ruling: Yes. The Supreme Court is not persuaded by the
their dismissal was part of respondents' design to bust argument of respondent FTC denying the presence of an
their newly-organized union which sought to enforce employer-employee relationship. It ruled that the Labor
their rights under the Labor Standards law. [1]
Arbiter correctly applied the doctrine of piercing the
Respondent FTC, on the other hand, maintained corporate veil to hold all respondents liable for unfair
that there was no employer-employee relationship labor practice and illegal termination of petitioners'
between FTC and petitioners. It said that at the time of
employment. It is a fundamental principle in
the termination of their services, petitioners were the
corporation law that a corporation is an entity separate
employees of MISI which was a separate and distinct
corporation from FTC.Hence, petitioners had no cause and distinct from its stockholders and from other
of action against FTC.[2] corporations to which it is connected. However, when
 the concept of separate legal entity is used to defeat the latter mode of payment, it is further resolved that
public convenience, justify wrong, protect fraud or the President and/or his Secretary be authorized as they
defend crime, the law will regard the corporation as an are hereby authorized, to issue the corresponding
association of persons, or in case of two corporations, unissued shares of stock of the corporation.
merge them into one. The separate juridical personality
Resolution was signed by three of TTTDCs directors, but
of a corporation may also be disregarded when such
corporation is a mere alter ego or business conduit of the signatures of the other two (2) TTTDC directors Jose
Silva, Jr. and Emmanuel Ocampo do not appear in the
another person.[12] In the case at bar, it was shown that
FISI was a mere adjunct of FTC. FISI, by virtue of a subject Resolution despite their presence in the
December 29, 1975 Board meeting.
contract for security services, provided FTC with
security guards to safeguard its premises. However, On March 1, 1976, the TTTDC Board of Directors passed
records show that FISI and FTC have the same owners another Resolution repealing its Resolution of
and business address, and FISI provided security December 29, 1975, thus:
services only to FTC and other companies belonging to
the Lucio Tan group of companies. The purported sale RESOLVED, as it is hereby resolved, that the Resolution
of the shares of the former stockholders to a new set of of December 29, 1975 authorizing the payment of
stockholders who changed the name of the corporation creditors with unissued shares of the corporation be as
to Magnum Integrated Services, Inc. appears to be part it is hereby repealed: Resolved further that the matter
of a scheme to terminate the services of FISI's security as well as the amount of the creditors claims be given
guards posted at the premises of FTC and bust their adequate study and consideration by the Board.
newly-organized union which was then beginning to
In view of the December 29, 1975 TTTDC Board
become active in demanding the company's compliance
Resolution transferring to Rovels the said shares of
with Labor Standards laws. Under these circumstances,
stock as construction fee, TTTDC Directors Jose Silva, Jr.
the Court cannot allow FTC to use its separate corporate
and Emmanuel Ocampo filed a complaint with the SEC
personality to shield itself from liability for illegal acts
against Roberto Roxas, TTTDC President, and Eduardo
committed against its employees.
Santos, Rovels President allegeing that there was no
70 Thus, we find that the termination of petitioners' meeting of the TTTDCs Board ofLAW
CORPORATION Directors
CASE on December
DIGESTS |1
services was without basis and therefore illegal. Under 29, 1975; that they did not authorize the transfer of
Article 279 of the Labor Code, an employee who is TTTDCs shares of stock to Rovels; that they never signed
unjustly dismissed from work is entitled to the alleged minutes of the meeting; and that the
reinstatement without loss of seniority rights and other signatures of the other two (2) Directors, Victoriano
privileges, and to his full backwages, inclusive of Leviste and Bienvenido Cruz, Jr., as well as that of
allowances, and to his other benefits or their monetary TTTDCs Secretary Francisco Carreon, Jr., were obtained
equivalent computed from the time his compensation through fraud and misrepresentation. They also alleged
was witheld from him up to the time of his actual that the TTTDC Board Resolution dated December 29,
reinstatement. However, if reinstatement is no longer 1975 was repealed by the March 1, 1976 Resolution.
possible, the employer has the alternative of paying the They thus prayed that the transfer of TTTDCs shares of
employee his separation pay in lieu of reinstatement. [13] stock to Rovels pursuant to Resolution dated December
29, 1975 be annulled.
54. ROVELS ENTERPRISE, Inc. vs OCAMPO 391 SCRA
176, October 17,2002 Commission finds and so holds that the purported
board resolution of December 29, 1975, not having
FACTS: Rovels is a domestic corporation engaged in been properly passed upon at a duly constituted board
construction work wherein Tagaytay Taal Tourist meeting, cannot be recognized as valid and hence,
Development Corporation (TTTDC) was among its client. without legal force and effect. Consequently, the
issuance of shares of stock to corporate creditors of the
In payment for the services rendered by Rovels, the
Board of Directors of TTTDC passed a Resolution on Tagaytay Taal Tourist Development Corporation is null
and void.
December 29, 1975 providing as follows:

RESOLVED, as it is hereby resolved that payment for Subsequently, TTTDC, Jose Silva, Emmanuel Ocampo,
et. al., and another stockholder of TTTDC, (the SILVA
professional fees and services rendered by x x x Rovels
Enterprises x x x be made in cash if funds are available, GROUP, now respondents), filed with the SEC a petition
against the SANTOS GROUP who were nominees of
or its equivalent number of shares of stock of the
corporation at par value, and should said creditors elect Rovels by virtue of the shares of stock issued pursuant
to the December 29, 1975 Resolution, proceeded to act
 as directors and officers of TTTDC. In their petition, the stockholders/directors/officers who were parties in
SILVA GROUP prayed that they be declared the true and SEC Case Nos. 1322 and 3806 are identical in that they
lawful stockholders and incumbent directors and are both based on the December 29, 1975 Resolution.
officers of TTTDC. Stated differently, they shared an identity of interest
from which flowed an identity of relief sought, namely,
SEC Hearing Officer rendered a Decision in favor of the to be declared owners of the stocks of TTTDC,
SILVA GROUP and the decision became final and premised on the same December 29, 1975 Resolution.
executory as no appeal was interposed by either the
SILVA GROUP or the SANTOS GROUP. This identity of interest is sufficient to make them
privies-in-law, one to the other, and meets the requisite
However, Rovels, to whom the TTTDC shares of stock of substantial identity of parties.
(worth P108,000.00) were transferred, claimed that it
be declared the majority stockholder of TTTDC as Rovels cannot take refuge in the argument that, as a
against SILVA GROUP. corporation, it is imbued with personality separate and
distinct from that of the respondents in SEC Case Nos.
ISSUE: Whether or not ROVELS (corporation) can be 1322 and 3806. The legal fiction of separate corporate
bound by the decision of SEC and the court represented existence is not at all times invincible and the same may
by its corporate officers? be pierced when employed as a means to perpetrate a
RULING: YES. The petition shows that Rovels prayer to fraud, confuse legitimate issues, or used as a vehicle to
be declared the majority stockholder of TTTDC is promote unfair objectives or to shield an otherwise
anchored on the December 29, 1975 TTTDC Board blatant violation of the prohibition against forum-
Resolution transferring its shares of stock to Rovels as shopping. While it is settled that the piercing of the
construction fee. This Resolution could have vested in corporate veil has to be done with caution, this
Rovels a right to be declared a stockholder of TTTDC. corporate fiction may be disregarded when necessary in
However, the same petition concedes that the the interest of justice.
December 29, 1975 Resolution was repealed by the 55. Mendoza v. Banco Real Development Bank, 470
March 1, 1976 Resolution. The petition likewise alleges SCRA 86 September 16, 2005
71 that there were prior interrelated cases filed with the CORPORATION LAW CASE DIGESTS | 1
SEC between the SILVA and SANTOS GROUPS, namely: Facts: The petition alleges   that on August 7, 1985, the
(1) SEC Case No. 1322 (wherein the SEC en banc in its Board of Directors of Technical Video, Inc. (TVI) passed a
Decision dated September 2, 1982 nullified the TTTDC Resolution authorizing its President, Eduardo A. Yotoko,
petitioner, or its General Manager-Secretary-Treasurer,
Board Resolution dated December 29, 1975, which
Manuel M. Mendoza, also a petitioner, to apply for and
Decision was affirmed with finality by this Court in G.R. secure a loan from the Pasay City Banco Real
No. 61863) and (2) SEC Case No. 3806 (wherein the SEC Development Bank (now LBC Development Bank),
declared the SILVA GROUP as the legitimate herein respondent.
stockholders of TTTDC, not Rovels nominees [the
On September 11, 1985, respondent bank extended a
SANTOS GROUP]). loan of P500,000.00 to TVI. In his capacity as General
Manager, petitioner Mendoza executed a promissory
Clearly, on the face of its petition, Rovels cannot claim
note and chattel mortgage over 195 units of Beta video
to be the majority stockholder of TTTDC. machines and their equipment and accessories
belonging to TVI in favor of respondent bank.
Relative to the second assigned error, Rovels contends
that it is not bound by the SEC Decision in SEC Case Nos. On October 3, 1986, TVI and two other video firms, Fox
1322 and 3806 and in G.R. No. 61863 as it was never a Video and Galactica Video, organized a new corporation
named FGT Video Network Inc. (FGT). It was registered
party in any of these cases.
with the Securities and Exchange Commission.
[3]
Contrary to its claim, Rovels is bound by the previous  Petitioner Mendoza was the concurrent President of
FGT and Operating General Manager of TVI. Thus, the
SEC Decisions. It must be noted that Eduardo Santos,
office of TVI had to be transferred to the building of FGT
President of Rovels, was one of the respondents in both for easier monitoring of the distribution and marketing
SEC Case Nos. 1322 and 3806. Clearly, Rovels and aspects of the business.
Eduardo Santos, being its President, share an identity of
For TVIs failure to pay its loan upon maturity,
interests sufficient to make them privies-in-law, as respondent bank, on January 26, 1987, filed with the
correctly found by the Court of Appeals in its assailed Office of the Clerk of Court of the Regional Trial Court
Decision. (RTC), Pasay City, a petition for Extra Judicial
Foreclosure and Sale of Chattel Mortgage.
In the case at bench, there can be no question that the
rights claimed by petitioner and its
 However, the Sheriffs Report/Return [4] dated January securing plaintiffs consent despite their awareness that
27, 1987 shows that TVI is no longer doing business at under the chattel mortgage, such consent was
its given address; that its General Manager, Mr. Manuel necessary, the doctrine of corporate entity must be
M. Mendoza, is presently employed at FGT Video pierced and the two must be held personally liable for
Network with offices at the Philcemcor Bldg., No. 4 Edsa TVIs obligation to plaintiff for said doctrine cannot be
cor. Connecticut St., Greenhills, San Juan, Metro Manila; used to defeat public convenience, justify wrong,
that when asked about the whereabouts of the video protect fraud or avoid a legal obligation.
machines, in the presence of the representative of
The same was affirmed in toto bby the CA.
respondent bank and its counsel, Mr. Mendoza denied
any knowledge of their whereabouts; and that action on Issue:  Whether herein petitioners are personally liable
respondents petition is indefinitely postponed until for TVIs indebtedness of P500,000.00 with respondent
further notice from the bank. bank.
Respondent then wrote TVI demanding the surrender of Ruling: Yes. Both the trial court and the Appellate Court
the video machines. In his letter dated February 19, found that the petitioners transferred the Beta video
1987, petitioner Mendoza requested the bank to give machines from TVI to FGT without the consent of
him additional time to enable us to pay our total respondent bank. Also, upon inquiry of the sheriff,
obligations and proposed a repayment scheme to start petitioner Mendoza declined knowledge of the
not later than March 10, 1987. [5] Still, no payment was whereabouts of the mortgaged video machines.
received by the bank. TVI simply refused and ignored Moreover, the fact that the NBI seized the video
the demand and kept silent as to the whereabouts of machines from FGT glaringly shows that petitioners
the video machines. transferred the same from TVI. More importantly, a
comparison of the list of video machines in the Chattel
Meanwhile, in a case entitled Republic of the
Mortgage Contract and the list of video machines seized
Philippines, plaintiff vs. FGT Video Network Inc., Manuel
by the NBI from FGT shows that they have the same
Mendoza, Alfredo C. Ongyangco, Eric Apolonio, Susan
serial numbers.
Yang ang Eduardo A. Yotoko, defendants, the RTC,
Branch 167, Pasig City issued a search warrant. The The courts below also found that TVI is petitioners mere
agents of the National Bureau of Investigation (NBI) alter ego or business conduit. They control the affairs of
confiscated at the offices of FGT 638 machines and TVI. Among its stockholders or directors, they were the
equipment including the 195 Beta machines mortgaged only ones who became incorporators of FGT. They
with respondent bank. transferred the assets of TVI to FGT.
72 CORPORATION LAW CASE DIGESTS | 1
On May 29, 1987, upon motion of FGT and herein The general rule is that obligations incurred by a
petitioners, the same court issued another Order corporation, acting through its directors, officers or
directing the NBI to release and return the said employees, are its sole liabilities. However, the veil with
machines to them. which the law covers and isolates the corporation from
its directors, officers or employees will be lifted when
However, Columbia Pictures Inc., Orion Pictures Corp.,
the corporation is used by any of them as a cloak or
Paramount Pictures Corp., Universal City Studios Inc.,
cover for fraud or illegality or injustice. [9] Here, the fraud
The Walt Disney Company and Warner Bros. filed with
was committed by petitioners to the prejudice of
this Court a petition for certiorari[6] assailing the Order
respondent bank. It bears emphasis that as reported by
of the lower court.
the sheriff, TVI is no longer doing business at its given
On June 18, 1987, this Court issued a temporary address and its whereabouts cannot be established as
restraining order enjoining the RTC from enforcing its yet.
assailed order. The machines and equipment were left
Both the trial court and the Court of Appeals thus
in the custody of the NBI until the petition
concluded that petitioners succeeded to hide the
for certiorari shall have been resolved with finality.
chattels, preventing the sheriff to foreclose the
On July 13, 1990, respondent bank filed with the mortgage. Obviously, they acted in bad faith to defraud
RTC, Branch 110, Pasig City,[7] a complaint for collection respondent bank.
of a sum of money[8] against TVI, FGT and petitioners.
The SC held that the Appellate Court, in affirming the
Only petitioners filed their joint answer to the
Decision of the trial court, correctly ruled that
complaint.
petitioners, not TVI, are the ones personally liable to
In their joint answer, petitioners specifically denied the respondent bank for the payment of the loan.
allegations in the complaint, raising the defense that the
loan is purely a corporate indebtedness of TVI.  The Trial 56. Reynoso vs Court of Appeals
Court finds that TVI was the mere alter ego or business 345 SCRA 335 [GR No. 116124-25 November 23, 2000]
conduit of Yotoko and Mendoza, and additionally
considering 1) that Mendoza disclaimed knowledge of Facts: Sometime in early 1960s, the Commercial Credit
the whereabouts of the TVI mortgaged property at the Corporation (CCC), a financing company and investment
time plaintiffs petition for extrajudicial foreclosure was firm, decided to organize franchise companies
being effected, and 2) that Mendoza and Yotoko indifferent parts of the country, wherein it shall hold
transferred the mortgaged property to FGT without first 30% equity. Employees of the CCC were designated as
 resident managers of the franchise companies. The organization of subsidiary corporations as what was
Petitioner Bibiano O. Reynoso IV was designated as the done here is usually resorted to for aggrupation of
resident manager of the franchise in Quezon City, capital the ability to cover more territory and
known as the Commercial Credit Corporation of Quezon population, the decentralization of activities best
City. CCC-QC entered into an exclusive agreement decentralized, and the securing of other legitimate
management contract with CCC whereby the latter was advantages. But when the mother corporation and its
granted the management and full control of the subsidiary cease to act in good faith and honest
business activities of the former. Under the contract, business judgement, when the corporate device is used
CCC-QC shall sell, discount and/or assign its receivables by the parent to avoid its liability for legitimate
to CCC. Subsequently, however, this discounting obligations of the subsidiary, and when the corporate
arrangement was discontinued pursuant to the so called fiction is used to perpetrate fraud or promote injustice,
DOSRI rule, prohibiting the lending of funds by the law steps in to remedy the problem. When that
corporations to its directors, officers, stockholders and happens, the corporate character is not necessarily
other persons with related interest therein. On account abrogated. It continuous for legitimate objectives.
of the new restrictions imposed by the Central Bank However, it is pursued in order to remedy injustice,
policy by virtue of the DOSRI rule, CCC decided to form such as that inflicted in this case.
CCC Equity Corporation, a wholly-owned subsidiary, to
which CCC transferred its 30% equity in CCC-QC, 57. Ramoso vs CA
together with 2 seats in the latter’s Board of Directors.
A complaint for sum of money with preliminary Facts: Avelina Ramoso and several others are investors
attachment was filed by CCC-equity against petitioner and majority stock holders of the franchise branches of
and the latter was also dismissed from employment to Commercial Credit Corporation (CCC).
which the lower court’s decision was rendered in favor
of the petitioner and the same has become final and CCC is a lending and investment firm. CCC contracted
executory. CCC changed its name to General Credit with its franchise branches for the latter to assign its
Corporation (GCC). receivables to CCC. But this practice was discontinued
due to a prohibition (DOSRI rule) issued by the Central
Issue: Whether or not the judgement in favor of the Bank where corporations are prohibited from lending
petitioner may be executed against respondent GCC. funds to persons with related interests, among others.
To circumvent this, CCC incorporated CCC Equity, a
Held: Yes. A corporation is an artificial being created by wholly owned CORPORATION
subsidiary to LAW
manage
73 CASEthe franchise
DIGESTS |1
operation of law, having the right of succession and the branches. CCC later changed its name to General Credit
powers, attributes, and properties expressly authorized Corporation (GCC).
by law or incident to its existence. It is an artificial being
invested by law with a personality separate and distinct In 1981, Ramoso et al alleged that they discovered
from those of the persons composing it as well as from several bad business practices being conducted by GCC;
that of any other legal entity to which it may be related. that such questionable practices divested GCC of its
It was evolved to make possible the aggregation and assets thereby placing the franchise branches at a
assembling of huge amounts of capital upon which big disadvantage; that GCC, through CCC Equity
business depends. It also has the advantage of non- mismanaged the franchise branches thereby causing
dependence on the lives of those who compose it even imminent losses to the investors.
as it enjoys certain rights and conducts activities of
natural persons. Ramoso et al then sued GCC before the Securities and
Exchange Commission. The hearing officer ruled in favor
Any piercing of the corporate veil has to be done with of Ramoso et al. He pierced the veil of corporate fiction
caution. However, the court will not hesitate to use its and he declared that the franchise branches, GCC, and
supervisory and adjudicative powers where the CCC equity are one and the same corporation; that as
corporate fiction is used as an unfair device to achieve such, the franchise branches, in whom Ramoso et al
an inequitable result defraud creditors, evade contracts invested, are not liable to the obligations incurred by
and obligations, or to shield it from the effects of a GCC. The SEC en banc however reversed the ruling of
court decision. The corporate fiction has to be the hearing officer. The Court of Appeals affirmed the
disregarded when necessary in the interest of justice. SEC en banc.

The defense of separateness will be disregarded when ISSUE: Whether or not the veil of corporate fiction
the business affairs of a subsidiary corporation are so should be pierced? - NO
controlled by the mother corporation to the extent that
it becomes an instrument or agent of its parent. But HELD: No. Ramoso et al did not properly plead their
even when there is dominance over the affairs of the cause. They merely alleged that CCC Equity is a conduit
subsidiary, the doctrine of piercing the veil of corporate of  GCC. As found by the SEC en banc, Ramoso et al
fiction applies only when such fiction is used to defeat were not able to prove that CCC Equity was
public convenience, justify wrong, protect fraud or incorporated in order to perpetrate fraud against them.
defend crime. Whether the existence of the corporation should be
 pierced depends on questions of facts, appropriately The so-called veil of corporation fiction treats as
pleaded.  Mere allegation that a corporation is the alter separate and distinct the affairs of a corporation and its
ego of the individual stockholders is insufficient. The officers and stockholders. As a general rule, a
presumption is that the stockholders or officers and the corporation will be looked upon as a legal entity, unless
corporation are distinct entities. The burden of proving and until sufficient reason to the contrary appears.
otherwise is on the party seeking to have the court When the notion of legal entity is used to defeat public
pierce the veil of the corporate entity. It was not shown convenience, justify wrong, protect fraud, or defend
that the debts incurred by GCC were actually incurred in crime, the law will regard the corporation as an
bad faith. Further, there is a pending case relating to the association of persons. Also, the corporate entity may
liability of Ramoso et al as guarantors – that will be the be disregarded in the interest of justice in such cases as
proper forum to raise their respective liability as regards fraud that may work inequities among members of the
said debts. corporation internally, involving no rights of the public
or third persons. In both instances, there must have
58. Secosa vs. Heirs of Erwin Suarez Francisco been fraud and proof of it. For the separate juridical
personality of a corporation to be disregarded, the
FACTS: Erwin Suarez Francisco was riding a motorcycle wrongdoing must be clearly and convincingly
along the City of Manila and traveling behind him was a established. It cannot be presumed.
sand and gravel truck, which in turn was being tailed by
an Isuzu truck driven by Raymundo Secosa. When The records of this case are bereft of any evidence
Secosa overtook the sand and gravel truck, he bumped tending to show the presence of any grounds
the motorcycle being driven by Francisco, causing the enumerated above that will justify the piercing of the
latter to fall and get run over by real wheels of the Isuzu veil of corporate fiction such as to hold the president of
truck which resulted to his instantaneous death. Dassad Warehousing and Port Services, Inc. solidarily
liable with it.
The parents of Erwin Francisco filed an action for
damages against Secosa, Dassad Warehousing and Port 59. Rosales vs New A.N.J.H. Enterprise
Services (The company which employed Secosa), and El
Buenasucenso Sy (the president of Dassad). The trial FACTS: Respondent New ANJH Enterprises is a sole
court ruled in favor of the parents and ordered the proprietorship owned by respondent Noel Awayan.
defendants to pay the plaintiffs jointly and severally. Petitioners are its former employees who worked as
The RTC decision was affirmed by the CA. machine operators, drivers, helpers, lead and boiler
74 CORPORATION LAW CASE DIGESTS |1
man.
Hence this petition, wherein the petitioners contended
that the CA erred in affirming the decision of the RTC in New ANJH Enterprises ceased its operations due to
holding Sy solidarily liable with Dassad and Secosa in
dwindling capital and sold its assets to a corporation.
violation of the Corporation Code and related
jurisprudence. Before the cessation, the company also gave notices to
its employees, including the petitioners herein,
ISSUE: Whether or not the doctrine of piercing the veil informing them of its plan to cease operations as well as
of the corporate fiction shall be applied? – NO offering them their respective separation pays.

HELD: Petitioner El Buenasenso Sy cannot be held The sale was consummated and the employees received
solidarily liable with his co-petitioners. While it may be their separation pay thereafter the petitioners filed a
true that Sy is the president of petitioner Dassad complaint for illegal dismissal because according to
Warehousing and Port Services, Inc., such fact is not by them New ANJH Enterprises resumed its operations as
itself sufficient to hold him solidarily liable for the
NH Oil using the same machineries and with the same
liabilities adjudged against his co-petitioners.
owners and management. Petitioners claim that the
It is a settled precept in this jurisdiction that a sale of the assets of New ANJH to NH Oil was a
corporation is invested by law with a personality circumvention of their security of tenure.
separate from that of its stockholders or members. It
has a personality separate and distinct from those of The Executive Labor Arbiter Santos ruled that the
the persons composing it as well as from that of any petitioners were illegally dismissed and ordered their
other entity to which it may be related. Mere ownership reinstatement and payment of backwages. In ruling for
by a single stockholder or by another corporation of all the petitioners, ELA Santos ratiocinated that the buyer
or nearly all of the capital stock of a corporation is not is practically the same as the seller hence it was
in itself sufficient ground for disregarding the separate
extremely difficult to conclude that the sale was
corporate personality. A corporations authority to act
and its liability for its actions are separate and apart genuine and can validly justify the termination of the
from the individuals who own it. petitioners. The NLRC reversed the decision and ruled
that the sale of the assets to NH Oil Mill was in the
exercise of sound management prerogative and there
 was no proof that it was made to defeat petitioner’s defendants, it has no corporate personality distinct and
security of tenure. The CA affirmed the NLRC. Hence this separate from that of its beneficial shareholders and,
petition. likewise, has no substantial assets in its own name.
Hence, any and all obligations of defendant CINTAS are
ISSUE: Whether applying the doctrine of piercing the the obligations of its beneficial shareholders since the
veil of corporate existence is justified in the present former is being used by the latter as an alter ego or
case? – YES business conduit for their sole benefit and/or to defeat
HELD: The Court held that the application of the public convenience.
doctrine of piercing the veil of corporate fiction is ISSUE: Whether the application of the doctrine of
frowned upon. However, it will not hesitate to disregard piercing the corporate veil is proper in this case? - NO
the corporate fiction if it is used to such an extent that
injustice, fraud, or crime is committed against another HELD: The general rule is that a corporation is clothed
in disregard of his rights. with a personality separate and distinct from the
persons composing it. Such corporation may not be held
In this case, petitioners advance the application of the liable for the obligation of the persons composing it;
doctrine because they were terminated from and neither can its stockholders be held liable for such
employment on the pretext that there will be an obligation. A corporation has a separate personality
impending permanent closure of the business as a distinct from its stockholders and from other
result of an intended sale of its assets to an undisclosed corporation to which it may be connected. This separate
corporation, and that there will be a change in the and distinct personality of a corporation is a fiction
management. created by law for convenience and to prevent injustice.
Subsequent events, however, revealed that the buyer of
Nevertheless, being a mere fiction of law, peculiar
the assets of their employer was a corporation owned
situations or valid grounds can exist to warrant, albeit
by the same employer and members of his family. sparingly, the disregard of its independent being and
Furthermore, the business re-opened in less than a the piercing of the corporate veil. Thus, the veil of
month under the same management. separate corporate personality may be lifted when such
75 personality is used to defeat public
CORPORATION LAWconvenience,
CASE DIGESTSjustify
|1
Admittedly, mere ownership by a single stockholder of wrong, protect fraud or defend crime; or used as a
all or nearly all of the capital stock of the corporation shield to confuse the legitimate issues; or when the
does not by itself justify piercing the corporate veil. corporation is merely an adjunct, a business conduit or
Nonetheless, in this case, other circumstances show an alter ego of another corporation or where the
that the buyer of the assets of petitioners' employer is corporation is so organized and controlled and its affairs
are so conducted as to make it merely an
none other than his alter ego. Clearly, the milieu of the
instrumentality, agency, conduit or adjunct of another
present case compels this Court to remove NH Oil's corporation; or when the corporation is used as a cloak
corporate mask as it had become, and was used as, a or cover for fraud or illegality, or to work injustice, or
shield for fraud, illegality and inequity against the where necessary to achieve equity or for the protection
petitioners. of the creditors. In such cases where valid grounds exist
for piercing the veil of corporate entity, the corporation
will be considered as a mere association of persons. The
liability will directly attach to them.
60. Martinez vs CA
However, mere ownership by a single stockholder or by
FACTS: Cintas Largas, Ltd. (CLL) is a foreign corporation another corporation of all or nearly all of the capital
doing business with Mar Tierra Corporation mainly for stocks of a corporation is not by itself a sufficient
the importation of molasses. CLL and Mar Tierra are ground to disregard the separate corporate personality.
both run by Martinez and Gonzales who are the The substantial identity of the incorporators of two or
President and Vice President of the latter respectively. more corporations does not warrantly imply that there
was fraud so as to justify the piercing of the writ of
BPI International Finance granted CLL a letter of credit
corporate fiction. To disregard the said separate
and by virtue of the said letter of credit the former juridical personality of a corporation, the wrongdoing
deposited an amount of USD 340,000 to the account of must be proven clearly and convincingly.
Mar Tierra Corp. The debt of CLL remained unpaid thus
BPI initiated an action for collection of the principal The test in determining the application of the
amount with a writ of preliminary attachment against instrumentality or alter ego doctrine is as follows:
CLL, as well as the officers of Mar Tierra Corp alleging
1. Control, not mere majority or complete stock control,
that CLL is a paper company which is being used as a
but complete domination, not only of finances but of
mere alter ego or a business conduit for the foregoing
 policy and business practice in respect to the sufficient showing that the corporate entity was
transaction attacked so that the corporate entity as to purposely used as a shield to defraud creditors and third
this transaction had at the time no separate mind, will persons of their rights.
or existence of its own;
61. EPG Construction Co. vs CA
2. Such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the violation FACTS: EPG contracted with UP for the construction of
of a statutory or other positive legal duty, or dishonest the UP Law Library. EPG did the work with a guarantee
and unjust act in contravention of plaintiffs legal rights; that it will be liable for all the defects of the
and construction within 1 year after turning it over to UP.
After the turnover to UP, various defects were reported
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained to EPG regarding the cooling system. EPG repaired it at
of. first, but refused when asked to do so again. UP went to
another contractor to have the defects fixed and sued
The absence of any one of these elements prevents EPGs and its President De Guzman for damages. The
piercing the corporate veil. In applying the RTC and CA ruled for UP, holding that EPG and its
instrumentality or alter ego doctrine, the courts are President are solidarily liable for the damages.
concerned with reality and not form, with how the
corporation operated and the individual defendants ISSUE: WON the President of EPG is solidarily liable with
relationship to that operation. EPG. –NO

In this case, the respondent failed to adduce the HELD: The SC held that there is no reason to hold the
quantum of evidence necessary to prove any valid President of EPG solidarily liable with EPG. It is an
ground for the piercing of the veil of corporate entity of
established doctrine that a corporation is a distinct legal
Mar Tierra Corporation, or of RJL for that matter, and
render the petitioner liable for the respondents claim, entity to be considered as separate and apart from the
jointly and severally, with Wilfrido Martinez and Lacson. individual stockholders or members who compose it,
The mere fact that the majority stockholder of Mar and is not affected by the personal rights, obligations
Tierra Corporation is the RJL, and that the petitioner, and transactions of its stockholders or members.
along with Jose and Luis Martinez, owned about 42% of Without valid reason to hold its president liable, |only
76 CORPORATION LAW CASE DIGESTS 1
the capital stock of RJL, do not constitute sufficient the corporation will shoulder the damages. A
evidence that the latter corporation, and/or the
corporation is invested by law with a personality
petitioner and his brothers, had complete domination of
Mar Tierra Corporation. It does not automatically follow separate and distinct from those of the persons
that the said corporation was used by the petitioner for composing it as well as from that of any other entity to
the purpose of committing fraud or wrong, or to which it may be related. Mere ownership by a single
perpetrate an injustice on the respondent. There is no stockholder or by another corporation of all or nearly all
evidence on record that the petitioner had any of the capital stock of a corporation is not of itself
involvement in the purchases of molasses by Wilfrido
sufficient ground for disregarding the separate
Martinez, Gonzales and Lacson, and the subsequent sale
corporate personality. The general manager of a
thereof to the CLL, through Mar Tierra Corporation. On
the contrary, the evidence on record shows that the CLL corporation therefore should not be made personally
purchased molasses from Mar Tierra Corporation and answerable for the payment of the employee's
paid for the same through the credit facility granted by backwages unless he had acted maliciously or in bad
the respondent to the CLL. The CLL, thereafter, made faith in terminating the services of the employee.
remittances to Mar Tierra Corporation from its deposit
account and MMP Nos. 063 and 084 with the The exception noted is where the official "had acted
respondent. The close business relationship of the two maliciously or in bad faith," in which event he may be
corporations does not warrant a finding that Mar Tierra made personally liable for his own act. That exception is
Corporation was but a conduit of the CLL. not applicable in the case at bar, because it has not
been proved that De Guzman acted maliciously or in
Likewise, the respondent failed to adduce preponderant bad faith when, as President of EPG, he sought to
evidence to prove that the Mar Tierra Corporation and protect its interests and resisted UP's claims. Whatever
the RJL were so organized and controlled, its affairs so damage was caused to UP as a result of his acts is the
conducted as to make the latter corporation merely an sole responsibility of EPG even though De Guzman was
instrumentality, agency, conduit or adjunct of the its principal officer and controlling stockholder.
former or of Wilfrido Martinez, Gonzales, and Lacson for
that matter, or that such corporations were organized 62. Jardine Davies vs JRB Realty
to defraud their creditors, including the respondent.
The mere fact, therefore, that the businesses of two or FACTS: In 1979-1980, respondent JRB Realty, Inc. built a
more corporations are interrelated is not a justification nine-storey building, named Blanco Center, on its parcel
for disregarding their separate personalities, absent
 of land located Makati City. An air conditioning system corporate legal entity is used as a cloak for fraud or
was needed for the Blanco Law Firm housed at the illegality.  This is the doctrine of piercing the veil of
second floor of the building. corporate fiction which applies only when such
corporate fiction is used to defeat public convenience,
On March 13, 1980, the respondent s Executive Vice- justify wrong, protect fraud or defend crime. The
President, Jose R. Blanco, accepted the contract
rationale behind piercing a corporation's identity is to
quotation of Mr. A.G. Morrison, President of Aircon and
Refrigeration Industries,Inc. (Aircon), for two (2) sets of remove the barrier between the corporation from the
Fedders Adaptomatic air conditioning equipment. persons comprising it to thwart the fraudulent and
Thereafter, two (2) brand new packaged air illegal schemes of those who use the corporate
conditioners were installed by Aircon but they could not personality as a shield for undertaking certain
deliver the desired cooling temperature. With this, the proscribed activities.
parties agreed to replace the units.
While it is true that Aircon is a subsidiary of the
In a Letter, Aircon stated that it would be replacing the petitioner, it does not necessarily follow that Aircon's
units currently installed with new ones using rotary
corporate legal existence can just be disregarded. In
compressors, at the earliest possible time. Regrettably,
however, it could not specify a date when delivery could Velarde v. Lopez, Inc., the Court categorically held that a
be effected. TempControl Systems, Inc. (a subsidiary of subsidiary has an independent and separate juridical
Aircon until1987) undertook the maintenance of the personality, distinct from that of its parent company;
units, inclusive of parts and services. hence, any claim or suit against the latter does not bind
the former, and vice versa. In applying the doctrine, the
In October 1987, the respondent learned, through following requisites must be established: (1) control,
newspaper ads, that Maxim Industrial and
not merely majority or complete stock control; (2) such
Merchandising Corporation (Maxim, for short) was the
new and exclusive licensee of Fedders Air Conditioning control must have been used by the defendant to
USA in the Philippines for the manufacture, distribution, commit fraud or wrong, to perpetuate the violation of a
sale, installation and maintenance of Fedders air statutory or other positive legal duty, or dishonest acts
conditioners. in contravention of plaintiff's legal rights; and (3) the
aforesaid control and breach of duty must proximately
The respondent requested that Maxim honor the
77 cause the injury or unjustLAW
CORPORATION lossCASE
complained
DIGESTS | 1of.
obligation of Aircon, but the latter refused. Hence, the
respondent then instituted an action for specific
performance with damages against Aircon, Fedders Air The records bear out that Aircon is a subsidiary of the
Conditioning USA, Inc., Maxim and petitioner Jardine petitioner only because the latter acquired Aircon's
Davies, Inc. Petitioner Jardine Davies, Inc. was majority of capital stock.  It, however, does not exercise
impleaded as defendant, considering that Aircon was a complete control over Aircon; nowhere can it be
subsidiary of the petitioner. gathered that the petitioner manages the business
affairs of Aircon.  Indeed, no management agreement
Petitioner contends that was not a party to the contract
between JRB Realty, Inc.and Aircon, and that it had exists between the petitioner and Aircon, and the latter
a personality separate and distinct fromthat of Aircon. is an entirely different entity from the petitioner.

RTC ordered defendants Jardine Davies, Inc., Fedders The existence of interlocking directors, corporate
Air Conditioning USA, Inc. and Maxim Industrial and officers and shareholders, which the respondent court
Merchandising Corporation, jointly and severally liable considered, is not enough justification to pierce the veil
which was affirmed by the CA. of corporate fiction, in the absence of fraud or other
public policy considerations.  But even when there is
dominance over the affairs of the subsidiary, the
ISSUE: Whether Jardine may be held solidarily liable
doctrine of piercing the veil of corporate fiction applies
because Aircon was formely Jardine’s Instrumentality or
only when such fiction is used to defeat public
Alter Ego? – NO
convenience, justify wrong, protect fraud or defend
HELD: It is an elementary and fundamental principle of crime. To warrant resort to this extraordinary remedy,
corporation law that a corporation is an artificial being there must be proof that the corporation is being used
invested by law with a personality separate and distinct as a cloak or cover for fraud or illegality, or to work
from its stockholders and from other corporations to injustice.  Any piercing of the corporate veil has to be
which it may be connected.  While a corporation is done with caution. The wrongdoing must be clearly and
allowed to exist solely for a lawful purpose, the law will convincingly established.  It cannot just be presumed.
regard it as an association of persons or in case of two
In the instant case, there is no evidence that Aircon was
corporations, merge them into one, when this
formed or utilized with the intention of defrauding its
 creditors or evading its contracts and obligations. There purpose of obtaining government contracts of various
was nothing fraudulent in the acts of Aircon in this case. projects.

63. Petitioners promised to pay him six percent (6%)

consultancy fee based on the total costs of the projects
64. PNB vs Ritratto obtained.
FACTS: PNB-IFL, a subsidiary company of PNB extended The consultancy agreement was not reduced into
credit to Ritratto and secured by the real estate writing because of the mutual trust between Marubeni
mortgages on four parcels of land. Since there was and the Lirag family.
default, PNB-IFL thru PNB, foreclosed the property and
were subject to public auction. Ritratto Group filed a Their close business and personal relationship dates
complaint for injunction. PNB filed a motion to dismiss back to 1960, when respondent's family was engaged in
on the grounds of failure to state a cause of action and the textile fabric manufacturing business, in which
the absence of any privity between respondents and Marubeni supplied the needed machinery, equipment,
petitioner. spare parts and raw materials.

ISSUE: Whether PNB privy to the loan contracts entered In compliance with the agreement, respondent Lirag
into by respondent & PNB-IFL being that PNB-IFL is made representations with various government
owned by PNB? – NO officials, arranged for meetings and conferences,
relayed pertinent information as well as submitted
HELD: No. The contract questioned is one entered into feasibility studies and project proposals, including
between Ritratto and PNB-IFL. PNB was admittedly an pertinent documents required by petitioners.
agent of the latter who acted as an agent with limited
authority and specific duties under a special power of One of the projects handled by respondent Lirag, the
attorney incorporated in the real estate mortgage. Bureau of Post project, amounting to P100,000,000.00
was awarded to the "Marubeni-Sanritsu tandem."
The mere fact that a corporation owns all of the stocks
of another corporation, taken alone is not sufficient to Despite respondent's repeated formal verbal demands
78 justify their being treated as one entity. If used to
for payment of CORPORATION LAW CASEfee
the agreed consultancy DIGESTS |1
petitioners
perform legitimate functions, a subsidiary’s separate
did not pay. In response to the first demand letter,
existence may be respected, and the liability of the
parent corporation as well as the subsidiary will be petitioners promised to reply within fifteen (15) days,
confined to those arising in their respective business. but they did not do so.
The courts may, in the exercise of judicial discretion,
step in to prevent the abuses of separate entity Pursuant to the consultancy agreement, respondent
privilege and pierce the veil of corporate entity. claimed a commission of six percent (6%) of the total
contract price, or a total of P6,000,000.00, or in the
65. MARUBENI CORPORATION v. FELIX LIRAG, GR No. alternative, that he be paid the same amount by way of
130998, 2001-08-10 damages or as the reasonable value of the services he
rendered to petitioners, and further claimed twenty
Facts:
percent (20%) of the amount recoverable as attorney's
Petitioner Marubeni is a foreign corporation organized fees and the costs of suit. Petitioners denied the
and existing under the laws of Japan. It was doing consultancy agreement.
business in the Philippines through its duly licensed,
Petitioner Ryohei Kimura did not have the authority to
wholly owned subsidiary, Marubeni Philippines
enter into such agreement in behalf of Marubeni. Only
Corporation. Petitioners Ryoichi Tanaka, Ryohei Kimura
Mr. Morihiko Maruyama, the general manager, upon
and Shoichi One were officers of Marubeni assigned to
issuance of a special power of attorney by the
its Philippine branch.
principal... office in Tokyo, Japan, could enter into any
On January 27, 1989, respondent Lirag filed with the contract in behalf of the corporation. Mr. Maruyama did
Regional Trial Court a complaint for specific not discuss with respondent Lirag any of the matters
performance and damages claiming that petitioners alleged in the complaint, nor agreed to the payment of
owed him the sum of P6,000,000.00 representing commission.
commission pursuant to an oral consultancy...
Thus, petitioners moved for the dismissal of the
agreement with Marubeni.
complaint.
Lirag claimed that on February 2, 1987, petitioner
Ryohei Kimura hired his consultancy group for the
 During the pre-trial conferences held on September 18 cloak or cover for fraud or illegality, or to work injustice,
and October 16, 1989 and on January 24, March 15 and or where necessary for the protection of creditors.
May 17, 1990, no amicable settlement was reached.
Any agreement entered into because of the actual or
Trial on the merits ensued.
supposed influence which the party has, engaging him
On April 29, 1993, the trial court promulgated a decision to influence executive officials in the discharge of their
and ruled that respondent is entitled to a commission. duties, which contemplates the use of personal
Respondent was led to believe that there existed an oral influence and solicitation rather than an appeal to the
consultancy agreement. Hence, he performed his part judgment of... the official on the merits of the object
of the agreement and helped petitioners get the sought is contrary to public policy.
project.
Consequently, the agreement, assuming that the parties
On May 26, 1993, petitioners interposed an appeal from agreed to the consultancy, is null and void as against
the decision to the Court of Appeals. public policy.

After due proceedings, on October 9, 1997, the Court of Therefore, it is unenforceable before a court of justice.
Appeals promulgated a decision affirming the decision
of the trial court. The Court of Appeals ruled that 66. BORROMEO VS CA
preponderance of evidence favored the existence of a FACTS: Respondent Equitable Savings Bank is a
consultancy agreement between the parties. It upheld domestic savings bank corporation with principal office
the factual... findings of the trial court and place of business at EPCIB Tower in Makati City. At
Issues: WON respondent is entitled to receive a the time the dispute began, it was a subsidiary of
Equitable PCI Bank (EPCIB), a domestic universal
commission if there was, in fact, a consultancy...
agreement banking corporation with principal office
in Makati City. After the merger of EPCIB
Ruling: We find the appeal meritorious. and Banco De Oro (BDO), they have adopted the
corporate name Banco De Oro.
An assiduous scrutiny of the testimonial and
79 documentary evidence extant leads us to the conclusion Petitioners wereCORPORATION LAWof
client-depositors CASE DIGESTS
EPCIB |1
for more
that the evidence could not support a solid conclusion than 12 years. Petitioners alleged that sometime in mid-
that a consultancy agreement, oral or written, was 1999, the branch manager of EPCIB offered a loan to the
agreed between petitioners and respondent. petitioners under its Own-a-Home Loan
Program. Petitioners applied for a loan of P4,000,000.00
In civil cases, he who alleges a fact has the burden of and were informed of the approval of the same. 
proving it; a mere allegation is not evidence.
 To secure the payment of the loan, petitioners
He must establish his cause by a preponderance of executed an REM over their land
evidence which respondent failed to establish in the in Quezon City. Petitioners asserted that even if the loan
instant case. documents were signed in blank, it was understood that
Assuming for the sake of argument that an oral they executed the REM in favor of EPCIB .
consultancy agreement has been perfected between Respondent Bank then released a total amount
the parties, respondent Lirag could not still claim fees of P3,600,000.00 in four installments, while the balance
on the project that has not been awarded to Marubeni. of P400,000.00 was not drawn by petitioners . On the
Respondent tried to justify his commission of roughly other hand, petitioners started to pay their monthly
about P6,000,000.00 in the guise that Marubeni and amortizations.
Sanritsu are sister corporations, thereby implying the Petitioners made repeated requests to EPCIB to furnish
need to pierce the veil of corporate fiction. Respondent them their copies of the loan documents which were
claimed that Marubeni as the supplier and real made verbally and also evidenced by letters from the
contractor of the project hired and sub-contracted the petitioner requesting their copies of the loan
project to Sanritsu. documents.  They further claimed that they purposely
To disregard the separate juridical personality of a did not draw the remaining balance of the loan in the
corporation, the wrongdoing must be clearly and amount of P400,000.00 and stopped paying their loan
convincingly established. It cannot be presumed. The amortizations to protest EPCIBs continued failure to
separate personality of the corporation may be provide them copies of the loan documents and its
disregarded only when the corporation is used as a
 imposition of an interest rate higher than that agreed If a contract should contain some stipulation in favor of
upon. a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before
In reply to the petitioners letter, the VP of EPCIB, Gary its revocation. A mere incidental benefit or interest of a
Vargas explained that as a matter of practice, their person is not sufficient. The contracting parties must
clients were given original copies of the loan documents have clearly and deliberately conferred a favor upon a
only upon full release of the amount loaned. EPCIB third person. (Emphasis ours.)
clarified that since petitioners loan had not been fully
released, the original documents were not yet sent to An extrajudicial foreclosure instituted by a third party to
them.  the Loan Agreement and the REM would, therefore, be
a violation of petitioners rights over their property.
In the meantime, respondent, through counsel, also
sent a letter to the petitioners demanding payment for In the instant case, petitioners assert that their creditor-
their obligation amounting to P4,097,261.04, inclusive mortgagee is EPCIB and not respondent. While ESB
of interest and other charges.  claims that petitioners have had transactions with it,
particularly the five check payments made in the name
Finally, petitioners received copies of the loan of ESB, it fails to categorically state that ESB and not
documents which they had earlier signed in blank. EPCIB is the real creditor-mortgagor in this loan and
According to petitioners, they were surprised to find out mortgage transaction. This Court finds the position
that the Loan Agreement and REM designated taken by the petitioners to be more credible. The four
respondent ESB as lender and mortgagor, instead of Promissory Notes designate EPCIB as the lender. [39] In a
EPCIB with whom they allegedly entered into the letter dated 19 December 2002, addressed to Home
agreement. Guaranty Corporation, EPCIB Vice President Gary Vargas
When the petitioners failed to pay for the loan in full even specified petitioners loan as one of its housing
by 30 September 2003, respondent sought to extra- loans for which it sought insurance coverage. [40] Records
judicially foreclose the REM. However,  petitioners filed also show that petitioners repeatedly dealt with EPCIB.
with the RTC a Complaint for Injunction, Annulment of When the petitioners complained of not receiving the
Mortgage with Damages and with Prayer for Temporary loan documents and the allegedly excessive interest
80 CORPORATION LAW CASE DIGESTS | 1
Restraining Order and Preliminary and Mandatory charges, they addressed their letter dated 3 August
Injunction against EPCIB and respondent. The 2003 to the president of EPCIB.[41] The response, which
petitioners alleged that the loan documents failed to explained the loan transactions in detail in a letter
reflect the true agreement between the parties. Firstly, dated 27 August 2003, was written by Gary Vargas,
the agreement was between the petitioners and EPCIB EPCIB Vice President.[42] Of almost three years
and, consequently, respondent had no interest in the amortizations, the checks were issued by petitioners in
REM.  the name of EPCIB, except only for five checks which
were issued in respondents name.[43]
ISSUE: WHETHER OR NOT THE PRIVATE RESPONDENT
SAVINGS BANK IS THE REAL PARTY-IN-INTEREST. Respondent, although a wholly-owned subsidiary of
EPCIB, has an independent and separate juridical
RULING: The petition is meritorious. personality from its parent company. The fact that a
corporation owns all of the stocks of another
In this case, petitioners rights to their property is
corporation, taken alone, is not sufficient to justify
restricted by the REM they executed over it. Upon their
their being treated as one entity. If used to perform
default on the mortgage debt, the right to foreclose the
legitimate functions, a subsidiarys separate existence
property would be vested upon the creditor-
shall be respected, and the liability of the parent
mortgagee. Nevertheless, the right of foreclosure
corporation, as well as the subsidiary, shall be confined
cannot be exercised against the petitioners by any
to those arising from their respective businesses. A
person other than the creditor-mortgagee or its
corporation has a separate personality distinct from its
assigns. According to the pertinent provisions of the
stockholders and other corporations to which it may
Civil Code:
be conducted.[44] Any claim or suit of the parent
Art. 1311. Contracts take effect only between the corporation cannot be pursued by the subsidiary based
parties, their assigns and heirs, except in case where the solely on the reason that the former owns the majority
rights and obligations arising from the contract are not or even the entire stock of the latter.
transmissible by their nature, or by stipulation or by
From a perusal of the records, petitioners did not enter
provision of law. The heir is not liable beyond the value
into a Loan Agreement and REM with
of the property he received from the decedent.
 respondent. Respondent, therefore, has no right to FACTS: Samahan ng Manggagawa sa Ren Transport
foreclose the subject property even after default, since (SMART) is a registered union, which had a five-year
this right can only be claimed by the creditor- collective bargaining agreement (CBA) with Ren
Transport Corp. (Ren Transport). The 60-day freedom
mortgagor, EPCIB; and, consequently, the extrajudicial
period of the CBA passed without a challenge to
foreclosure of the REM by respondent would be in SMART'S majority status as bargaining agent. SMART
violation of petitioners property rights. thereafter conveyed its willingness to bargain with Ren
Transport, to which it sent bargaining proposals. Ren
DOCTRINE OF SEPARATE JURIDICAL PERSONALITY Transport, however, failed to reply to the demand.
II. RECOVERY OF MORAL DAMAGES Subsequently, two members of SMART wrote to the
Department of Labor and Employment - National
1. MAMBULAO LUMBER COMPANY V. PNB (G.R. NO. L- Capital Region (DOLE-NCR). The office was informed
22973) that a majority of the members of SMART had decided
to disaffiliate from their mother federation to form
Facts: Petitioner Mambulao Lumber applied for an another union, Ren Transport Employees Association
industrial loan with herein respondent PNB and was (RTEA). SMART contested the alleged disaffiliation
approved with its real estate, machinery and through a letter dated 4 April 2005.
equipments as collateral. PNB released the approved
During the pendency of the disaffiliation dispute at the
loan but petitioner failed to pay and was later
DOLE-NCR, Ren Transport stopped the remittance to
discovered to have already stopped in its operation. SMART of the union dues that had been checked off
PNB then moved for the foreclosure and sale of the from the salaries of union workers as provided under
mortgaged properties. The properties were sold and the CBA. Further, on 19 April 2005, Ren Transport
petitioner sent a bank draft to PNB to settle the balance voluntarily recognized RTEA as the sole and exclusive
of the obligation. PNB however alleges that a remaining bargaining agent of the rank-and-file employees of their
company.
balance stands and a foreclosure sale would still be held
unless petitioner remits said amount. The foreclosure On 6 July 2005, SMART filed with the labor arbiter a
sale proceeded and petitioner’s properties were taken complaint for unfair labor practice against Ren
out of its compound. Petitioner filed actions before the Transport.
81 court and claims among others, moral damages. CORPORATION LAW CASE DIGESTS | 1
LA RULING: Ren Transport is guilty of acts of unfair
Issue: Whether or not petitioner corporation, who has labor practice.
already ceased its operation, may claim for moral
NLRC RULING: affirmed the labor arbiter's finding of
damages.
unfair labor practice on the part of Ren Transport.
Ruling: NO. Union dues were ordered remitted to SMART.

The NLRC also awarded moral damages to SMART,

Herein appellant’s claim for moral damages, however,
saying that Ren transport's refusal to bargain was
seems to have no legal or factual basis. Obviously, an inspired by malice or bad faith. The precipitate
artificial person like herein appellant corporation cannot recognition of RTEA evidenced such bad faith,
experience physical sufferings, mental anguish, fright, considering that it was done despite the pendency of
serious anxiety, wounded feelings, moral shock or social the disaffiliation dispute at the DOLE-NCR.
humiliation which are basis of moral damages. A
CA RULING: deleted the award of moral damages to
corporation may have a good reputation which, if SMART, but affirmed the NLRC decision on all other
besmirched, may also be a ground for the award of matters. The CA ruled that SMART, as a corporation,
moral damages. The same cannot be considered under was not entitled to moral damages.
the facts of this case, however, not only because it is
ISSUE: WON SMART is entitled to moral damages.
admitted that herein appellant had already ceased in its
business operation at the time of the foreclosure sale of RULING: SMART is not entitled to an award of moral
the chattels, but also for the reason that whatever damages.
adverse effects of the foreclosure sale of the chattels
could have upon its reputation or business standing Indeed, a corporation is not, as a general rule, entitled
to moral damages. Being a mere artificial being, it is
would undoubtedly be the same whether the sale was
incapable of experiencing physical suffering or
conducted at Jose Panganiban, Camarines Norte, or in sentiments like wounded feelings, serious anxiety,
Manila which is the place agreed upon by the parties in mental anguish or moral shock.
the mortgage contract.
Although this Court has allowed the grant of moral
2. REN TRANSPORT CORP vs. NLRC damages to corporations in certain situations, it must be
remembered that the grant is not automatic. The
 claimant must still prove the factual basis of the damage Leon, et. al., be ordered to pay the corporation and
and the causal relation to the defendant's acts. [37] In this Seggerman, jointly and severally, damages and
case, while there is a showing of bad faith on the part of attorney’s fees.
the employer in the commission of acts of unfair labor
practice, there is no evidence establishing the factual After hearing and on 29 July 1970, the court issued an
basis of the damage on the part of SMART. order dismissing the petition for dissolution of the
search warrant. In the meantime, or on 16 April 1970,
3. Bache & Co Inc vs. Ruiz GR L-32409, 27 February the Bureau of Internal Revenue made tax assessments
1971 on the corporation in the total sum of P2,594,729.97,
partly, if not entirely, based on the documents thus
Facts: On 24 February 1970, Misael P. Vera, seized.
Commissioner of Internal Revenue, wrote a letter
addressed to Judge Vivencio M. Ruiz requesting the The corporation and Seggerman filed an action for
issuance of a search warrant against Bache & Co. (Phil.), certiorari, prohibition, and mandamus.
Inc. and Frederick E. Seggerman for violation of Section
Issue: Whether the corporation has the right to contest
46(a) of the National Internal Revenue Code (NIRC), in
the legality of the seizure of documents from its office.
relation to all other pertinent provisions thereof,
particularly Sections 53, 72, 73, 208 and 209, and Held: The legality of a seizure can be contested only by
authorizing Revenue Examiner Rodolfo de Leon to make the party whose rights have been impaired thereby, and
and file the application for search warrant which was that the objection to an unlawful search and seizure is
attached to the letter. purely personal and cannot be availed of by third
parties. In Stonehill, et al. vs. Diokno, et al. (GR L-19550,
In the afternoon of the following day, De Leon and his
19 June 1967; 20 SCRA 383) the Supreme Court
witness, Arturo Logronio, went to the Court of First
impliedly recognized the right of a corporation to object
Instance (CFI) of Rizal. They brought with them the
against unreasonable searches and seizures; holding
following papers: Vera’s letter-request; an application
that the corporations have their respective
for search warrant already filled up but still unsigned by
personalities, separate and distinct from the personality
De Leon; an affidavit of Logronio subscribed before De
of the corporate officers, regardless of the amount of
Leon; a deposition in printed form of Logronio already
shares of stock or the interest of each of them in said
accomplished and signed by him but not yet subscribed;
corporations, whatever, the offices they hold therein
and a search warrant already accomplished but still
may be; and that the corporate officers therefore may
82 unsigned by Judge. At that time the Judge was hearing a CORPORATION LAW CASE DIGESTS | 1of
not validly object to the use in evidence against them
certain case; so, by means of a note, he instructed his
the documents, papers and things seized from the
Deputy Clerk of Court to take the depositions of De
offices and premises of the corporations, since the right
Leon and Logronio.
to object to the admission of said papers in evidence
After the session had adjourned, the Judge was belongs exclusively to the corporations, to whom the
informed that the depositions had already been taken. seized effects belong, and may not be invoked by the
The stenographer, upon request of the Judge, read to corporate officers in proceedings against them in their
him her stenographic notes; and thereafter, the Judge individual capacity.
asked Logronio to take the oath and warned him that if
The distinction between the Stonehill case and the
his deposition was found to be false and without legal
present case is that: in the former case, only the officers
basis, he could be charged for perjury.
of the various corporations in whose offices documents,
The Judge signed de Leon’s application for search papers and effects were searched and seized were the
warrant and Logronio’s deposition. Search Warrant 2- petitioners; while in the latter, the corporation to whom
M-70 was then signed by Judge and accordingly issued. the seized documents belong, and whose rights have
3 days later (a Saturday), the BIR agents served the thereby been impaired, is itself a petitioner.
search warrant to the corporation and Seggerman at
On that score, the corporation herein stands on a
the offices of the corporation on Ayala Avenue, Makati,
different footing from the corporations in Stonehill.
Rizal.
Moreover, herein, the search warrant was void
The corporation’s lawyers protested the search on the inasmuch as First, there was no personal examination
ground that no formal complaint or transcript of conducted by the Judge of the complainant (De Leon)
testimony was attached to the warrant. The agents and his witness (Logronio).
nevertheless proceeded with their search which yielded
The Judge did not ask either of the two any question the
6 boxes of documents.
answer to which could possibly be the basis for
On 3 March 1970, the corporation and Seggerman filed determining whether or not there was probable cause
a petition with the Court of First Instance (CFI) of Rizal against Bache & Co. and Seggerman. The participation
praying that the search warrant be quashed, dissolved of the Judge in the proceedings which led to the
or recalled, that preliminary prohibitory and mandatory issuance of Search Warrant 2-M-70 was thus limited to
writs of injunction be issued, that the search warrant be listening to the stenographer’s readings of her notes, to
declared null and void, and that Vera, Logronio, de a few words of warning against the commission of
perjury, and to administering the oath to the
 complainant and his witness. This cannot be consider a 1. Bataan Shipyard and Engineering Co., Inc.
personal examination. (Engineering Island Shipyard and

Second, the search warrant was issued for more than Mariveles Shipyard)
one specific offense. The search warrant was issued for
at least 4 distinct offenses under the Tax Code. The first 2. Baseco Quarry
is the violation of Section 46(a), Section 72 and Section
3. Philippine Jai-Alai Corporation
73 (the filing of income tax returns), which are
interrelated. The second is the violation of Section 53 4. Fidelity Management Co., Inc.
(withholding of income taxes at source).
5. Romson Realty, Inc.
The third is the violation of Section 208 (unlawful
pursuit of business or occupation); and the fourth is the 6. Trident Management Co.
violation of Section 209 (failure to make a return of
receipts, sales, business or gross value of output 7. New Trident Management
actually removed or to pay the tax due thereon). Even
8. Bay Transport
in their classification the 6 provisions are embraced in 2
different titles: Sections 46(a), 53, 72 and 73 are under 9. And all affiliate companies of Alfredo "Bejo"
Title II (Income Tax); while Sections 208 and 209 are Romualdez
under Title V (Privilege Tax on Business and
Occupation). And were ordered to do the following:

Lastly, the search warrant does not particularly describe 1. To implement this sequestration order with a
the things to be seized. Search Warrant No. 2-M-70 minimum disruption of these companies' business
tends to defeat the major objective of the Bill of Rights, activities.
i.e., the elimination of general warrants, for the
language used therein is so all-embracing as to include 2. To ensure the continuity of these companies as going
all conceivable records of the corporation, which, if concerns, the care and maintenance of these assets
seized, could possibly render its business inoperative. until such time that the Office of the President through
Thus, Search Warrant 2-M-70 is null and void. the Commission on Good Government should decide
otherwise.
4. Bataan Shipyard VS. PCGG
83 3. To report to CORPORATION
the CommissionLAW
on CASE
GoodDIGESTS |1
Government
GR NO. 75885, MAY 27, 1987 periodically.

Facts: BASECO describes itself in its petition as "a ship Further, you are authorized to request for
repair and ship building company incorporated as a Military/Security Support from the
domestic private corporation on Aug. 30, 1972 by a
consortium of Filipino ship owners and shipping Military/Police authorities, and such other acts essential
executives. Its main office is at Engineer Island, Port to the achievement of this sequestration order.
Area, Manila, where its Engineer Island Shipyard is
Thereafter, the corporation was ordered by the PCGG to
housed, and its main shipyard is located at Mariveles
produce certain documents such as:
Bataan."
1. Stock Transfer Book
Its Articles of Incorporation disclose that its authorized
capital stock is Php60,000,000.00 divided into 60,000 2. Legal documents, such as:
shares, of which 12,000 shares with a value of
Php12,000,000.00 have been subscribed, and on said 2.1. Articles of Incorporation
subscription, the aggregate sum of Php3,035,000.00 has
been paid by the incorporators. 2.2. By-Laws

The same articles identify the incorporators, numbering 2.3. Minutes of the Annual Stockholders Meeting from
fifteen. By 1986, however, of these fifteen 1973 to 1986
incorporators, six had ceased to be stockholders. As of 2.4. Minutes of the Regular and Special Meetings of the
1986, there were twenty stockholders listed in Board of Directors from
BASECO's Stock and Transfer Book.
1973 to 1986
When EO 1 & 2 was promulgated by Pres.
Corazon Aquino and respectively the sequestration, 2.5. Minutes of the Executive Committee Meetings from
takeover and other orders in relation to the EO done by 1973 to 1986
the PCGG to the alleged Marcos controlled corporation
which is BASECO. The problem arose when the 2.6. Existing contracts with
sequestration order was initiated. The sequestration suppliers/contractors/others.
order was directed to 3 commissioners of the PCGG
directing them to sequester the following:
 3. Yearly list of stockholders with their corresponding The Court held that the right against self-incrimination
share/stockholdings from 1973 to 1986 duly certified by has no application to corporations. Every corporation is
the Corporate Secretary. a direct creature of the law and receives an individual
franchise from the State. But a partnership, although is
4. Audited Financial Statements such as Balance Sheet, deemed to be a juridical person by grant of the State,
Profit & Loss and others from 1973 to December 31, becomes a juridical person through a private contract of
1985. partnership between and among the partners, without
needing to register its existence with the State or any of
5. Monthly Financial Statements for the current year up
its organs. More importantly, the partnership “person”
to March 31, 1986.
is a fiction of law given more for the convenience of the
6. Consolidated Cash Position Reports from January to partners, and thus can be dissolved by the will of the
April 15, 1986. partners or by the happening of an event that would
constitute the termination of the contractual
7. Inventory listings of assets up dated up to March 31, relationship, whereas, no corporation can be dissolved
1986. without the consent of the State, and only after due
notice and hearing. Likewise, the other features of the
8. Updated schedule of Accounts Receivable and partnership, mainly mutual agency, delectus personae
Accounts Payable. and unlimited liability on the part of the partners, that
places a close identity between the persons of the
9. Complete list of depository banks for all funds with
partners and that of the partnership. This is unlike in
the authorized signatories for withdrawals thereof.
corporate setting, where the stockholders do not own
10. Schedule of company investments and placements. corporate properties, have no participation in
management of corporate affairs, and enjoy personal
Petitioner now prays to the Court to: immunity from the debts and liabilities of the
corporation, and where basically the corporation “is its
1) declare unconstitutional and void Executive Orders own person,” and acts through a professional group of
Numbered 1 and 2; managers and agents called the Board of Directors.
2) annul the sequestration order dated April- 14, 1986, While therefore it is understandable that a corporation,
and all other orders subsequently issued and acts done that has no heart, feels pain, and has no soul that can
on the basis thereof, inclusive of the takeover order of be damned, cannot be expected to be entitled to the
84 July 14, 1986 and the termination of the services of the CORPORATION
constitutional right LAW CASE DIGESTS
against self-incrimination, |1
it is quite
BASECO executives. different in the case of the partnership, since its person
is merely an extension of the group of partners, who
3) the production of certain document infringed the
having come together in business, and acting still for
right against self-incrimination
such business enterprise, could not be presumed to
4) and that PCGG unduly interfered with its have waived their individual rights against self-
management and affairs and right of dominion. incrimination.

Argument of BASECO: First, no notice and hearing was 5. PNB vs CA

accorded to it before its properties and business were
Facts: Rita Tapnio owes PNB an amount of P2,000.00.
taken over; Second, the PCGG is not a court, but a
The amount is secured by her sugar crops about to be
purely investigative agency and therefore not
harvested including her export quota allocation worth
competent to act as prosecutor and judge in the same
1,000 piculs. The said export quota was later dealt by
cause; Third, there is nothing in the issuances which
Tapnio to a certain Jacobo Tuazon at P2.50 per picul or
envisions any proceeding, process or remedy by which
a total of P2,500. Since the subject of the deal is
petitioner may expeditiously challenge the validity of
mortgaged with PNB, the latter has to approve it. The
the takeover after the same has been effected; and
branch manager of PNB recommended that the price
Fourthly, being directed against specified persons, and
should be at P2.80 per picul which was the prevailing
in disregard of the constitutional presumption of
minimum amount allowable. Tapnio and Tuazon agreed
innocence and general rules and procedures, they
to the said amount. And so the bank manager
constitute a Bill of Attainder."
recommended the agreement to the vice president of
Issues: PNB. The vice president in turn recommended it to the
board of directors of PNB.
1. Whether or not the order of production of
documents would be self-incriminating to BASECO However, the Board of Directors wanted to raise the
price to P3.00 per picul. This Tuazon does not want
2. Whether or not a corporation can avail the right hence he backed out from the agreement. This resulted
against self-incrimination to Tapnio not being able to realize profit and at the
same time rendered her unable to pay her P2,000.00
Held: ISSUES 1 & 2: crop loan which would have been covered by her
agreement with Tuazon.
 Eventually, Tapnio was sued by her other creditors and Villegas and Enrile sought to recover damages from
Tapnio filed a third party complaint against PNB where Time Magazine, an American Corporation, so they filed
she alleged that her failure to pay her debts was a complaint in the CFI of Rizal.
because of PNB’s negligence and unreasonableness.
Petitioner received the summons and a copy of the
ISSUE: Whether or not Tapnio is correct. complaint at its offices in New York on 13 December
1967 and, on 27 December 1967, it filed a motion to
HELD: Yes. In this type of transaction, time is of the dismiss the complaint for lack of jurisdiction and
essence considering that Tapnio’s sugar quota for said improper venue, relying upon the provisions of Republic
year needs to be utilized ASAP otherwise her allotment Act 4363.
may be assigned to someone else, and if she can’t use
it, she won’t be able to export her crops. It is The judge deferred the proceedings for the reason that
unreasonable for PNB’s board of directors to disallow "the rule laid down under Republic Act. No. 4363,
the agreement between Tapnio and Tuazon because of amending Article 360 of the Revised Penal Code, is not
the mere difference of 0.20 in the agreed price rate. applicable to actions against non-resident defendants,
What makes it more unreasonable is the fact that the and because questions involving harassment and
P2.80 was recommended both by the bank manager inconvenience, as well as disruption of public service do
and PNB’s VP yet it was disapproved by the board. not appear indubitable.
Further, the P2.80 per picul rate is the minimum
allowable rate pursuant to prevailing market trends that Issue/s: 1. WON under the provisions of Republic Act
time. This unreasonable stand reflects PNB’s lack of the No. 4363 the respondent Court of First Instance of Rizal
reasonable degree of care and vigilance in attending to has jurisdiction to take cognizance of the civil suit for
the matter. PNB is therefore negligent. damages arising from an allegedly libelous publication,
considering that the action was instituted by public
In failing to observe the reasonable degree of care and officers whose offices were in the City of Manila at the
vigilance which the surrounding circumstances time of the publication; if it has no jurisdiction, whether
reasonably impose, petitioner is consequently liable for or not its erroneous assumption of jurisdiction may be
the damages caused on private respondents. Under challenged by a foreign corporation by writ of certiorari
Article 21 of the New Civil Code, “any person who or prohibition. – NO and YES
wilfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy 2. WON Republic Act 4363 is applicable to action against
shall compensate the latter for the damage.” The afore- a foreign corporation or non-resident defendant – NO
85 CORPORATION LAW CASE DIGESTS | 1
cited provisions on human relations were intended to
Ruling: GRANTED.
expand the concept of torts in this jurisdiction by
granting adequate legal remedy for the untold number Ratio:
of moral wrongs which is impossible for human
foresight to specifically provide in the statutes.  1. Art 360, RA 4363 reads in part: The criminal and civil
action for damages in cases of written defamations as
A corporation is civilly liable in the same manner as provided for in this chapter, shall be filed
natural persons for torts, because “generally speaking, simultaneously or separately with the court of first
the rules governing the liability of a principal or master instance of the province or city where the libelous
for a tort committed by an agent or servant are the article is printed and first published or where any of the
same whether the principal or master be a natural offended parties actually resides at the time of the
person or a corporation, and whether the servant or commission of the offense;
agent be a natural or artificial person. All of the
authorities agree that a principal or master is liable for Provided, however, That where one of the offended
every tort which it expressly directs or authorizes, and parties is a public officer whose office is in the City of
this is just as true of a corporation as of a natural Manila at the time of the commission of the offense, the
person, a corporation is liable, therefore, whenever a action shall be filed in the Court of First Instance of the
tortious act is committed by an officer or agent under City of Manila or of the city or province where the
express direction or authority from the stockholders or libelous article is printed and first published, and in case
members acting as a body, or, generally, from the such public officer does not hold office in the City of
directors as the governing body.” Manila, the action shall be filed in the Court of First
Instance of the province or city where he held office at
6. Time Inc. vs. Judge Reyes the time of the commission of the offense or where the
libelous article is printed and first published and in case
Facts: In Time’s Asian Edition Magazine, Manila Mayor
one of the offended parties is a private individual, the
Antonio Villegas was accused of having coffers
action shall be filed in the Court of First Instance of the
containing “far more pesos than seemed reasonable in
province or city where he actually resides at the time of
the light of his income.” Juan Ponce Enrile was dragged
the commission of the offense or where the libelous
onto the article because he allegedly lent Villegas
matter is printed and first published;
30,000 pesos as he was his compadre and at that time,
Enrile was the Secretary of Finance.
 Provided,further, That the civil action shall be filed in single integrated publication, such as one edition of a
the same court where the criminal action is filed and newspaper, book, or magazine, or one broadcast, is
vice versa; treated as a unit, giving rise to only one cause of action,
regardless of the number of times it is exposed to
Provided, furthermore, That the court where the different people.
criminal action or civil action for damages is first filed,
shall acquire jurisdiction to the exclusion of other 6. These rules are not pertinent in the present scheme
courts; And provided finally, That this amendment shall because the number of causes of action that may be
not apply to cases of written defamations, the civil available to the respondents-plaintiffs is not here in
and/or criminal actions which have been filed in court at issue. The court is confronted by a specific venue
the time of the effectivity of the law… statute, conferring jurisdiction in cases of libel against
Public officials to specified courts, and no other. The
2. The complaint lodged in the court of Rizal by rule is that where a statute creates a right and provides
respondents does not allege that the libelous article a remedy for its enforcement, the remedy is exclusive;
was printed and first published in the province of Rizal and where it confers jurisdiction upon a particular court,
and, since the respondents-plaintiffs are public officers that jurisdiction is likewise exclusive, unless otherwise
with offices in Manila at the time of the commission of provided. Hence, the venue provisions of Republic Act
the alleged offense, it is clear that the only place left for No. 4363 should be deemed mandatory for the party
them wherein to file their action, is the Court of First bringing the action, unless the question of venue should
Instance of Manila. be waived by the defendant, which was not the case
here. Only thus can the policy of the Act be upheld and
3. The intent, of the law is clear: a libeled public official
maintained. Nor is there any reason why the
might sue in the court of the locality where he holds
inapplicability of one alternative venue should result in
office, in order that the prosecution of the action should
rendering the other alternative, also inapplicable.
interfere as little as possible with the discharge of his
official duties and labors. The only alternative allowed 7. Petitioner's failure to aver its legal capacity to
him by law is to prosecute those responsible for the institute the present petition is not fatal, for A foreign
libel in the place where the offending article was corporation may, by writ of prohibition, seek relief
printed and first published. Here, the law tolerates the against the wrongful assumption of jurisdiction. And a
interference with the libeled officer's duties only for the foreign corporation seeking a writ of prohibition against
sake of avoiding unnecessary harassment of the further maintenance of a suit, on the ground of want of
accused. Since the offending publication was not jurisdiction in which jurisdiction is CASE
not bound by|the
86 CORPORATION LAW DIGESTS 1
printed in the Philippines, the alternative venue was not ruling of the court in which the suit was brought, on a
open to respondent Mayor Villegas of Manila and motion to quash service of summons, that it has
Undersecretary of Finance Enrile, who were the jurisdiction.
offended parties.
8. It is also advanced that the present petition is
4. That respondents-plaintiffs could not file a criminal premature, since respondent court has not definitely
case for libel against a non-resident defendant does not ruled on the motion to dismiss, nor held that it has
make Republic Act No. 4363 incongruous of absurd, for jurisdiction, but only argument is untenable. The motion
such inability to file a criminal case against a non- to dismiss was predicated on the respondent court's
resident natural person equally exists in crimes other lack of jurisdiction to entertain the action; and the
than libel. It is a fundamental rule of international rulings of this Court are that writs of certiorari or
jurisdiction that no state can by its laws, and no court prohibition, or both, may issue in case of a denial or
which is only a creature of the state, can by its deferment of action on such a motion to dismiss for lack
judgments or decrees, directly bind or affect property or of jurisdiction.
persons beyond the limits of the state. Not only this, but
if the accused is a corporation, no criminal action can lie E. INCORPORATION AND ORGANIZATION
against it, whether such corporation or resident or non-
resident. At any rate, the case filed by respondents- 1. SAMAHAN NG OPTOMETRISTS VS. ACEBEDO
plaintiffs is case for damages. INTERNATIONAL CORPORATION
G.R. NO. 117097
5. 50 Am. Jur. 2d 659 differentiates the "multiple FACTS:
publication" and "single publication" rules (invoked by
private respondents) to be as follows: The common law
On February 22, 1991, Acebedo filed an application with
rule as to causes of action for tort arising out of a single
the Office of the Mayor of Candon, Ilocos Sur, for the
publication was to the effect that each communication
issuance of a permit for the opening and operation of a
of written or printed matter was a distinct and separate
branch of the Acebedo Optical in that municipality.
publication of a libel contained therein, giving rise to a
separate cause of action. This rule ('multiple publication'
The application was opposed by the Samahan ng
rule) is still followed in several American jurisdictions,
Optometrists sa Pilipinas (SOP) which contended that
and seems to be favored by the American Law Institute.
Acebedo is a juridical entity not qualified to practice
Other jurisdictions have adopted the 'single publication'
optometry.
rule which originated in New York, under which any
 On March 6, 1991, Acebedo filed its answer, arguing it is business, rather, is the buying and importing of
not the corporation, but the optometrists employed by eyeglasses and lenses and other similar or allied
it, who would be practicing optometry. instruments from suppliers thereof and selling the same
to consumers.
On April 17, 1991, the Mayor of Candon created a
For petitioners' argument to hold water, there
committee, composed of "public respondents Eduardo
need be clear showing that RA. No. 1998 prohibits a
Ma. Guirnalda, Dante G. Pacquing and Octavio de
corporation from hiring optometrists, for only then
Peralta, to pass on Acebedo’s application.
would it be undeniably evident that the intention of the
legislature is to preclude the formation of the so-called
On September 26, 1991 the committee rendered a
optometry corporations because such is tantamount to
decision denying Acebedo application for a mayor's
the practice of the profession of optometry which is
permit to operate a branch in Candon and ordering
legally exercisable only by natural persons and
Acebedo to close its establishment within fifteen (15)
professional partnerships. We have carefully reviewed
days from receipt of the decision. Acebedo moved for
RA. No. 1998 however, and we find nothing therein that
reconsideration but its motion was denied on
supports petitioner's insistent claims.
November 14, 1991. Acebedo was ordered to close its
establishment within ten (10) days from receipt of the All told, there is no law that prohibits the hiring by
order. corporations of optometrists or considers the hiring by
corporations of optometrists as a practice by the
On December 9, 1991, Acebedo filed with the Court of corporation itself of the profession of optometry.
Appeals a petition for certiorari (CA G.R SP No. 26782),
Wherefore, the instant petition is hereby
questioning the decision of respondent committee. Its
dismissed. Costs against the petitioners.
petition, however, was referred to the court a quo,
which on December 16, 1992, dismissed Acebedo's
petition. Hence, the appeal.
ISSUES: 3. Corporate name; LIMITATION ON USE OF
CORPORATION NAME
WON Acebedo as a Corporation is qualified to practice
optometry.

HELD: 1) INDIAN CHAMBER OF COMMERCE PHILS., INC.

87 CORPORATION LAW CASE DIGESTS | 1
v. FILIPINO INDIAN CHAMBER OF COMMERCE IN THE
No. Private respondent does not deny that it PHILIPPINES, INC.
employs optometrists whose role in the operations of
its optical shops is to administer the proper eye FACTS:
examination in order to determine the correct type and
grade of lenses to prescribe to persons purchasing the Filipino-Indian Chamber of Commerce of the
same from private respondent's optical shops. Philippines, Inc. (defunct FICCPI) was originally
Petitioners vehemently insist that in so employing said registered with the SEC as Indian Chamber of
optometrists, private respondent is in effect itself
Commerce of Manila, Inc. on November 24, 1951, with
practicing optometry. Such practice, petitioners
conclude, is in violation of RA. No. 1998, which, it must SEC Registration Number 6465 On October 7, 1959, it
be noted at this juncture, has been repealed and amended its corporate name into Indian Chamber of
superseded by RA. 8050. Commerce of the Philippines, Inc., and further amended
Petitioners' contentions are, however, untenable. it into Filipino-Indian Chamber of Commerce of the
The fact that private respondent hires optometrists who Philippines, Inc. on
practice their profession in the course of their
employment in private respondent's optical shops, does March 4, 1977,. Pursuant to its Articles of Incorporation,
not translate into a practice of optometry by private and without applying for an extension of its corporate
respondent itself. Private respondent is a corporation term, the defunct FICCPI's term of existence expired on
created and organized for the purpose of conducting
November 24, 2001.
the business of selling optical lenses or eyeglasses,
among others. The clientele of private respondent SEC Case No. 05-008
understably, would largely be composed of persons
with defective vision and thus need the proper lenses to On January 20, 2005, Mr. Naresh Mansukhani
correct the same and enable them to gain normal
(Mansukhani) reserved the   corporate   name  
vision. The determination of the proper lenses to sell to
"Filipino   Indian   Chamber   of Commerce   in  the
private respondent's clientele entails the employment
of optometrists who have been precisely trained for Philippines, Inc." (FICCPI), for the period from January
that purpose. Private respondent's business is not the 20, 2005 to April 20, 2005, with the Company
determination itself of the proper lenses needed by Registration and Monitoring Department (CRMD) of the
persons with defective vision. Private respondent's SEC.8In an opposition letter dated April 1, 2005, Ram
 Sitaldas (Sitaldas), claiming to be a representative of the Chamber of Commerce in the Philippines, Inc." On the
defunct FICCPI, alleged that the corporate name has same date, the CRMD approved and issued the
been used by the defunct FICCPI since 1951, and that Certificate of Incorporation of petitioner ICCPI.
the reservation by another person who is not its
member or representative is illegal. the SEC En Bane granted the appeal filed by FICCPI, and
reversed the CRMD's decision. Citing Section 18 of the
The CRMD called the parties for a conference and Corporation Code,the SEC En Bane made a finding that
"both from the standpoint of their [ICCPI and FICCPI]
required them to submit their position papers.
Subsequently, on May 27, 2005, the CRMD rendered a corporate names and the purposes for which they were
established, there exist[s] a similarity that could
decision granting Mansukhani's reservation, holding
that he possesses the better right over the corporate inevitably lead to confusion." It also ruled that
"oppositor [FICCPI] has the prior right to use its
name. The CRMD ruled that the defunct FICCPI has no
legal personality to oppose the reservation of the corporate name to the exclusion of the others. It was
registered with the Commission on March 14, 2006
corporate name by Mansukhani. After the expiration of
the defunct FICCPFs corporate existence, without any while respondent [ICCPI] was registered on April 05,
2006. By virtue of oppositor's [FICCPI] prior
act on its part to extend its term, its right over the name
ended. Thus, the name "Filipino Indian Chamber of appropriation and use of its name, it is entitled to
protection against  the use of identical or similar name
Commerce in the Philippines, Inc." is free for
appropriation by any party. of another corporation.

ISSUE:
On September 27, 2006, the CA affirmed the decision of
the SEC En Banc. It ruled that Mansukhani, reserving the 1. WoN FICCPI acquired a prior right over 
name 'Filipino Indian Chamber of Commerce in the the use of the corporate name.
Philippines, Inc.," has the of the better right over the
corporate name. It ruled that with the expiration 2. WoN ICCPI's name is identical and 
corporate life of the defunct FICCPI, without an deceptively or confusingly similar to 
extension having been filed and granted, it lost its legal that of FICCPI.
88 personality as a corporation. Thus, the CA affirmed the CORPORATION LAW CASE DIGESTS | 1
HELD:
SEC En Banc ruling that after the expiration of its term,
the defunct FICCPI's rights over the name also 1. In this case, FICCPI was incorporated on March 14,
ended. The CA also cited SEC Memorandum Circular No. 2006. On the other hand, ICCPI was incorporated only
14-200018 which gives protection to corporate names on April 5, 2006, or a month after FICCPI registered its
for a period of three years after the approval of the corporate name. Thus, applying the principle in
dissolution of the corporation. It noted that the the Refractories case (priority of adoption rule), we
reservation for the use of the corporate name "Filipino hold that FICCPI, which was incorporated earlier,
Indian Chamber of Commerce in the Philippines, Inc.," acquired a prior right over the use of the corporate
and the opposition were filed only in January 2005, way name.
beyond this three-year period.
ICCPI cannot argue that it first incorporated and held
SEC Case No. 06-014
the "Filipino Indian Chamber of Commerce," in 1977;
On December 8, 2005, Mr. Pracash Dayacanl, who and that it established the name's goodwill until it failed
allegedly represented the defunct FICCPI, filed an to renew its name due to oversight. 49 It is settled that a
application with the CRMD for the reservation of the corporation is ipso facto dissolved as soon as its term of
corporate name "Indian Chamber of Commerce Phils., existence expires.50 SEC Memorandum Circular No. 14-
Inc." (ICCPI). Upon knowledge, Mansukhani, in a letter 2000 likewise provides for the use of corporate names
dated February 14, 2006, formally opposed the of dissolved corporations:
application. Mansukhani cited the SEC En Banc decision
in SEC Case No. 05-008 recognizing him as the one
14. The name of a dissolved firm shall not be allowed to
possessing the better right over the corporate name
be used by other firms within three (3) years after the
"Filipino Chamber of Commerce in the Philippines, Inc.
approval of the dissolution of the corporation by the
In a letter dated April 5, 2006 the CRMD denied Commission, unless allowed by the last stockholders
Mansukhani's opposition. It stated that the name representing at least majority of the outstanding capital
stock of the dissolved firm.
"Indian Chamber of Commerce Phils., Inc." is not
deceptively or confusingly similar to "Filipino Indian
 When the term of existence of the defunct FICCPI FACTS:
expired on November 24, 2001, its corporate name
cannot be used by other corporations within three years Philips Export B.V. (PEBV) filed with the SEC for the
cancellation of the word “Philips” the corporate name
from that date, until November 24, 2004. FICCPI
reserved the name "Filipino Indian Chamber of of Standard Philips Corporation in view of its prior
registration with the Bureau of Patents and the SEC.
Commerce in the Philippines, Inc." on January 20, 2005,
or beyond the three-year period. Thus, the SEC was However, Standard Philips refused to amend its Articles
of Incorporation so PEBV filed with the SEC a petition
correct when it allowed FICCPI to use the reserved
corporate name. for the issuance of a Writ of Preliminary Injunction,
however this was denied ruling that it can only be done
2. ICCPFs arguments are without merit. These words do when the corporate names are identical and they have
not effectively distinguish the corporate names. On the at least 2 words different. This was affirmed by the SEC
one hand, the word "Filipino" is merely a description, en banc and the Court of Appeals thus the case at bar.
referring to a Filipino citizen or one living in the
ISSUE:
Philippines, to describe the corporation's members. On
the other, the words "in the Philippines" and "Phils., Whether or not Standard Philips can be enjoined from
Inc." are simply geographical locations of the using Philips in its corporate name.
corporations which, even if appended to both the
corporate names, will not make one distinct from the RULING: YES
other. Under the facts of this case, these words cannot
A corporation’s right to use its corporate and trade
be separated from each other such that each word can
name is a property right, a right in rem, which it may
be considered to add distinction to the corporate
assert and protect against the whole world. According
names. Taken together, the words in the phrase "in the
to Sec. 18 of the Corporation Code, no corporate name
Philippines" and in the phrase "Phils. Inc." are
may be allowed if the proposed name is identical or
synonymous—they both mean the location of the
deceptively confusingly similar to that of any existing
corporation.
corporation or to any other name already protected by
Petitioner cannot argue that the combination of words law or is patently deceptive, confusing or contrary to
89 CORPORATION LAW CASE DIGESTS | 1
in respondent's corporate name is merely descriptive existing law.
and generic, and consequently cannot be appropriated
as a corporate name to the exclusion of the
For the prohibition to apply, 2 requisites must be
others.57 Save for the words "Filipino," "in the," and
present:
"Inc.," the corporate names of petitioner and
(1) the complainant corporation must have acquired a
respondent are identical in all other respects.
prior right over the use of such corporate name and
On the second point, ICCPI's corporate name is
(2) the proposed name is either identical or deceptively
deceptively or confusingly similar to that of FICCPI. It is
or confusingly similar to that of any existing corporation
settled that to determire the existence of confusing
or to any other name already protected by law or
similarity in corporate names, the test is whether the
patently deceptive, confusing or contrary to existing
similarity is such as to mislead a person, using ordinary
law.
care and discrimination. In so doing, the court must
examine the record as well as the names
themselves.59 Proof of actual confusion need not be With regard to the 1st requisite, PEBV adopted the
shown. It suffices that confusion is probably or likely to name “Philips” part of its name 26 years before
occur.60chanrobleslaw Standard Philips. As regards the 2nd, the test for the
existence of confusing similarity is whether the
In this case, the overriding consideration in determining similarity is such as to mislead a person using ordinary
wheiher a person, using ordinary care and care and discrimination. Standard Philips only contains
discrimination, might be misled is the circumstance that one word, “Standard”, different from that of PEBV. The
both ICCPI and FICCPI have a common primary purpose, 2 companies’ products are also the same, or cover the
that is, the promotion of Filipino-Indian business in the same line of products. Although PEBV primarily deals
Philippines. with electrical products, it has also shipped to its
subsidiaries machines and parts which fall under the
classification of “chains, rollers, belts, bearings and
2) Philips Export B.V. vs. CA cutting saw”, the goods which Standard Philips also
produce. Also, among Standard Philips’ primary
 purposes are to buy, sell trade x x x electrical wiring manufacturing, producing, selling, exporting and
devices, electrical component, electrical supplies. Given otherwise dealing in any and all refractory bricks, its by-
these, there is nothing to prevent Standard Philips from products and derivatives.
dealing in the same line of business of electrical devices.
The use of “Philips” by Standard Philips tends to show Petitioner Industrial Refractories Corporation (Industrial
Refractories) on the other hand, was incorporated in
its intention to ride on the popularity and established
goodwill of PEBV. 1979 originally under the name Synclaire Manufacturing
Corporation. Its amended Articles of Incorporation
changed its corporate name. It is engaged in the
business of manufacture of all kinds of ceramics and
3) Universal Mills Corporation vs Universal Textile other products.
Mills, Inc.
Both companies are local suppliers of monolithic
FACTS: gunning mix.
In 1953, Universal Textile Mills, Inc. (UTMI) was When respondent Refractories Corp discovered that
organized. In 1954, Universal Hosiery Mills Corporation
petitioner was using such corporate name, they filed
(UHMC) was also organized. Both are actually distinct
corporations but they engage in the same business before the Securities and Exchange Commission a
(fabrics). In 1963, UHMC petitioned to change its name petition to compel petitioner to change its corporate
to Universal Mills Corporation (UMC). The Securities and name on the ground that it is confusingly similar with
Exchange Commission (SEC) granted the petition. that of petitioners such that the public may be confused
Subsequently, a warehouse owned by UMC was gutted or deceived into believing that they are one and the
by fire. News about the fire spread and investors of same corporation.
UTMI thought that it was UTMI’s warehouse that was
destroyed. UTMI had to make clarifications that it was On appeal, petitioner Industrial Refractories
UMC’s warehouse that got burned. Eventually, UTMI contended that there is no confusing similarity
petitioned that UMC should be enjoined from using its between their corporate names, hence, the said
name because of the confusion it brought. The SEC complaint must be denied.
granted UTMI’s petition. UMC however assailed the
90 order of the SEC as it averred that their tradename is CORPORATION LAW CASE DIGESTS | 1
ISSUE: 1.) Whether or not there is a need for petitioner
not deceptive; that UTMI’s tradename is qualified by Industrial Refractories to change its corporate name on
the word “Textile”, hence, there can be no confusion.
the ground of confusing similarity with that of the
ISSUE: Whether or not the decision of the SEC is correct. respondent’s. –YES
HELD: Yes. There is definitely confusion as it was
evident from the facts where the investors of UTMI 2.) Whether SEC has jurisdiction over the case. -YES
mistakenly believed that it was UTMI’s warehouse that
RULING: 1.) Petitioner must change its corporate name.
was destroyed. Although the corporate names are not
really identical, they are indisputably so similar that it
Confusing and deceptive similarity of corporate names
can cause, as it already did, confusion. The SEC did not
act in abuse of its discretion when it order UMC to drop is prohibited under Section 18 of the Corporation Code.
its name because there was a factual evidence The policy behind the prohibition is to avoid fraud upon
presented as to the confusion. Further, when UMC filed the public that will have the occasion to deal with the
its petition for change of corporate name, it made an entity concerned, the evasion of legal obligations
undertaking that it shall change its name in the event and duties, and the reduction of difficulties of
that there is another person, firm or entity who has administration and supervision over the corporation.
obtained a prior right to the use of such name or one
similar to it. That promise is still binding upon the Pursuant to the said law, the Revised Guidelines in
corporation and its responsible officers. the Approval of Corporate and Partnership Names
specifically requires that: (1) corporate name shall not
be identical, misleading or confusingly similar to one
4.) INDUSTRIAL REFRACTORIES CORPORATION OF THE
already registered by another corporation with the
PHILIPPINES, petitioner, v. COURT OF APPEALS,
Commission, and (2) if the proposed name is similar to
SECURITIES AND EXCHANGE COMMISSION and
the name of a registered firm, the proposed name must
REFRACTORIES CORPORATION OF THE PHILIPPINES,
contain at least one distinctive word different from the
respondents , G.R. 122174 (2002)
name of the company already registered.
FACTS: Respondent Refractories Corporation of the
Further, as held in Philips Export B.V. v. Court of
Philippines (Refractories Corp) is a corporation duly
Appeals, to fall within the prohibition of the law, two
organized on 1976 engaged in the business of
 requisites must be proven, to wit: (1) that the and of special shapes. Refractories also include
complainant corporation acquired a prior right over the refractory cements, bonding mortars, plastic firebrick,
use of such corporate name, and (2) the proposed name castables, ramming mixtures, and other bulk materials
is either identical, deceptively or confusingly similar to such as dead-burned grain magneside, chrome or
that of any existing corporation or to any other name ground ganister and special clay.
protected by law, or patently deceptive, confusing or
contrary to existing law. While the word refractories is a generic term, its usage
is not widespread and is limited merely to the
Moreover, as to the first requisite or the Priority of industry/trade in which it is used, and its continuous use
Adoption rule, the Court says that the right to the by respondent RCP for a considerable period has made
exclusive use of a corporate name with the freedom the term so closely identified with it.  Moreover, as held
from infringement by similarity is determined by in the case of Ang Kaanib sa Iglesia ng Dios kay Kristo
priority of adoption. In this case, respondent Hesus, H.S.K. sa Bansang Pilipinas, Inc. vs. Iglesia ng
Refractories Corp was incorporated in 1976 while Dios kay Cristo Jesus, Haligi at Suhay ng
petitioner Industrial Refractories, incorporated in 1979, Katotohanan,  petitioners appropriation of respondent's
only started using its name when it amended its Articles corporate name cannot find justification under the
of Incorporation in1985. Hence, being the prior generic word rule. A contrary ruling would encourage
registrant, Refractories Corp has acquired the right to other corporations to adopt verbatim and register an
use ‘Refractories’ as part of its corporate name. existing and protected corporate name, to the
detriment of the public.
Lastly, with respect to the second requisite, in
determining the existence of confusing similarity in 2.) The jurisdiction of the SEC is not merely confined to
corporate names, the test is whether the similarity is the adjudicative functions provided in Section 5 of P.D.
such as to mislead a person using ordinary care and 902-A, as amended. By express mandate, it has absolute
discrimination and the Court must look to the record as jurisdiction, supervision and control over all
well as the names themselves. The Court stressed the corporations. It also exercises regulatory and
fact that petitioner’s corporate name is “Industrial administrative powers to implement and enforce the
Refractories Corporation of the Philippines”, while Corporation Code, one of which is Section 18, which
91 CORPORATION LAW CASE DIGESTS | 1
respondent is “Refractories Corporation of the provides:
Philippines”. Obviously, both names contain the words:
‘refractories’, ‘corporation’ and ‘Philippines’. The only SEC. 18. Corporate name. -- No corporate name may be
allowed by the Securities and Exchange Commission if
word that distinguishes the former from the latter is the
word ‘Industrial’, which merely identifies a the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or
corporation’s general field of activities or operation. We
need not linger on these two corporate names to to any other name already protected by law or is
patently deceptive, confusing or contrary to existing
conclude that they are patently similar that even with
reasonable care and observation, confusion might laws. When a change in the corporate name is
approved, the Commission shall issue an amended
arise. It must be noted that both cater to the same
clientele, i.e.  the steel industry. In fact, the SEC found certificate of incorporation under the amended name.
that there were instances when different steel It is the SECs duty to prevent confusion in the use of
companies were actually confused between the two, corporate names not only for the protection of the
especially since they also have similar product corporations involved but more so for the protection of
packaging. Such findings are accorded not only great the public, and it has authority to de-register at all times
respect but even finality, and are binding upon this and under all circumstances corporate names which in
Court, unless it is shown that it had arbitrarily its estimation are likely to generate confusion. Clearly
disregarded or misapprehended evidence before it to therefore, the present case falls within the ambit of the
such an extent as to compel a contrary conclusion had SECs regulatory powers.
such evidence been properly appreciated.  And even
without such proof of actual confusion between the two
corporate names, it suffices that confusion is probable 5) GSIS FAMILY BANK - THRIFT BANK [Formerly Inc.],
or likely to occur. vs.

Refractory materials are described as follows: BPI FAMILY BANK,

Refractories are structural materials used at high
temperatures to [sic] industrial furnaces. They are FACTS:
supplied mainly in the form of brick of standard sizes
 Petitioner was originally organized as Royal Savings Respondent claimed exclusive ownership to the name
Bank and started operations in 1971. Beginning 1983 "Family Bank," having acquired the name since its
and 1984, petitioner encountered liquidity problems. purchase and merger with Family Bank and Trust
On July 9, 1984, it was placed under receivership and Company way back 1985. Respondent also alleged that
later temporarily closed by the Central Bank of the through the years, it has been known as "BPI Family
Philippines. Two (2) months after its closure, petitioner Bank" or simply "Family Bank" both locally and
reopened and was renamed Comsavings Bank, Inc. internationally. As such, it has acquired a reputation and
under the management of the Commercial Bank of goodwill under the name, not only with clients here and
Manila. abroad, but also with correspondent and competitor
banks, and the public in general.
In 1987, the Government Service Insurance System
(GSIS) acquired petitioner from the Commercial Bank of Respondent prayed the SEC CRMD to disallow or
Manila. Petitioner's management and control was thus prevent the registration of the name "GSIS Family Bank"
transferred to GSIS. To improve its marketability to the or any other corporate name with the words "Family
public, especially to the members of the GSIS, petitioner Bank" should the same be presented for registration.
sought SEC's approval to change its corporate name to Respondent likewise prayed the SEC CRMD to issue an
"GSIS Family Bank, a Thrift Bank." order directing petitioner or any other corporation to
change its corporate name if the names have already
Petitioner likewise applied with the Department of been registered with the SEC.
Trade and Industry (DTI) and Bangko Sentral ng Pilpinas
(BSP) for authority to use "GSIS Family Bank, a Thrift The SEC CRMD was thus confronted with the issue of
Bank" as its business name. The DTI and the BSP whether the names BPI Family Bank and GSIS Family
approved the applications. Thus, petitioner operates Bank are confusingly similar as to require the
under the corporate name "GSIS Family Bank – a Thrift amendment of the name of the latter corporation.
Bank," pursuant to the DTI Certificate of Registration
The SEC CRMD declared that upon the merger of FBTC
No. 741375 and the Monetary Board Circular approval.
with the BPI in 1985, the latter acquired the right to the
Respondent BPI Family Bank was a product of the use of the name of the absorbed corporation. Thus, BPI
92 merger between the Family Bank and Trust Company Family Bank hasCORPORATION LAW
a prior right to theCASE
use DIGESTS |1
of the name
(FBTC) and the Bank of the Philippine Islands (BPI). On Family Bank in the banking industry, arising from its
June 27, 1969, the Gotianum family registered with the long and extensive nationwide use, coupled with its
SEC the corporate name "Family First Savings Bank," registration with the Intellectual Property Office (IPO) of
which was amended to "Family Savings Bank," and then the name "Family Bank" as its trade name. Applying the
later to "Family Bank and Trust Company." Since its rule of "priority in registration" based on the legal
incorporation, the bank has been commonly known as maxim first in time, first in right, the SEC CRMD
"Family Bank." In 1985, Family Bank merged with BPI, concluded that BPI has the preferential right to the use
and the latter acquired all the rights, privileges, of the name "Family Bank." More, GSIS and Comsavings
properties, and interests of Family Bank, including the Bank were then fully aware of the existence and use of
right to use names, such as "Family First Savings Bank," the name "Family Bank" by FBTC prior to the latter's
merger with BPI.
"Family Bank," and "Family Bank and Trust Company."
BPI Family Savings Bank was registered with the SEC as The SEC CRMD also held that there exists a confusing
a wholly-owned subsidiary of BPI. BPI Family Savings similarity between the corporate names BPI Family Bank
Bank then registered with the Bureau of Domestic Trade and GSIS Family Bank. It explained that although not
the trade or business name "BPI Family Bank," and identical, the corporate names are indisputably similar,
acquired a reputation and goodwill under the name. as to cause confusion in the public mind, even with the
exercise of reasonable care and observation, especially
Proceedings before the SEC so since both corporations are engaged in the banking
Eventually, it reached respondent’s attention that business.
petitioner is using or attempting to use the name
"Family Bank." Thus, on March 8, 2002, respondent
petitioned the SEC Company Registration and
Monitoring Department (SEC CRMD) to disallow or
prevent the registration of the name "GSIS Family Bank"
or any other corporate name with the words "Family
Bank" in it.
 In a decision, the SEC CRMD said, PREMISES We uphold the decision of the Court of Appeals.
CONSIDERED respondent GSIS FAMILY BANK is hereby
directed to refrain from using the word "Family" as part Section 18 of the Corporation Code provides,
of its name and make good its commitment to change Section 18. Corporate name. – No corporate name may
its name by deleting or dropping the subject word from be allowed by the Securities and Exchange Commission
its corporate name within [thirty (30) days] from the if the proposed name is identical or deceptively or
date of actual receipt hereof. confusingly similar to that of any existing corporation or
to any other name already protected by law or is
Petitioner appealed the decision to the SEC En Banc,
which denied the appeal, and upheld the SEC CRMD in patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is
the SEC En Banc Decision. Petitioner elevated the SEC
En Banc Decision to the Court of Appeals. approved, the Commission shall issue an amended
certificate of incorporation under the amended name.
Court of Appeals:
In Philips Export B.V. v. Court of Appeals, this Court
The Court of Appeals ruled that the approvals by the ruled that to fall within the prohibition of the law on the
BSP and by the DTI of petitioner’s application to use the right to the exclusive use of a corporate name, two
name "GSIS Family Bank" do not constitute authority for requisites must be proven, namely:
its lawful and valid use. It said that the SEC has absolute
jurisdiction, supervision and control over all (1) that the complainant corporation acquired a prior
right over the use of such corporate name; and
corporations.

Further, te Court of Appeals held that respondent was (2) the proposed name is either
entitled to the exclusive use of the corporate name (a) identical or
because of its prior adoption of the name "Family Bank"
since 1969. There is confusing similarity in the corporate (b) deceptive or confusingly similar to that of any
names because "[c]onfusion as to the possible existing corporation or to any other name already
association with GSIS might arise if we were to allow protected by law; or
93 Comsavings Bank to add its parent company’s acronym, CORPORATION LAW CASE DIGESTS | 1
(c) patently deceptive, confusing or contrary to existing
‘GSIS’ to ‘Family Bank.’ This is true especially
law.
considering both companies belong to the banking
industry. Proof of actual confusion need not be shown. These two requisites are present in this case. On the
It suffices that confusion is probably or likely to occur." first requisite of a prior right, Industrial Refractories
Corporation of the Philippines v. Court of Appeals (IRCP
After its Motion for Reconsideration was denied,
case) is instructive. In that case, Refractories
petitioner brought the decision to this Court via a
Corporation of the Philippines (RCP) filed before the SEC
Petition for Review on Certiorari.
a petition to compel Industrial Refractories Corporation
ISSUES: of the Philippines (IRCP) to change its corporate name
on the ground that its corporate name is confusingly
1. Whether or not the Court of Appeals gravely similar with that of RCP’s such that the public may be
erred in affirming the SEC Resolution finding the confused into believing that they are one and the same
word "Family" not generic despite its corporation. The SEC and the Court of Appeals found for
unregistered status with the IPO of the Bureau petitioner, and ordered IRCP to delete or drop from its
of Patents and the use by GSIS-Family Bank in corporate name the word "Refractories." Upon appeal
its corporate name of the words "[F]amily of IRCP, this Court upheld the decision of the CA.
[B]ank" as deceptive and [confusingly similar] to
the name BPI Family Bank.

2. Whether or Not Court of Appeals gravely erred

when it completely disregarded the opinion of
the Banko Sentral ng Pilipinas that the use by
the herein petitioner of the trade name GSIS
Family Bank – Thrift Bank is not similar or does
not deceive or likely cause any deception to the
public.

RULING:
 Applying the priority of adoption rule to determine prior proper name by which petitioner is identified, the word
right, this Court said that RCP has acquired the right to "thrift" is simply a classification of the type of bank that
use the word "Refractories" as part of its corporate petitioner is. Even if the classification of the bank as
name, being its prior registrant. In arriving at this "thrift" is appended to petitioner's proposed corporate
conclusion, the Court considered that RCP was name, it will not make the said corporate name distinct
incorporated on October 13, 1976 and since then from respondent's because the latter is likewise
continuously used the corporate name "Refractories engaged in the banking business.
Corp. of the Philippines." Meanwhile, IRCP only started
using its corporate name "Industrial Refractories Corp. This Court used the same analysis in Ang mga Kaanib sa
Iglesia ng Dios Kay Kristo Hesus, H.S.K. sa Bansang
of the Philippines" when it amended its Articles of
Incorporation on August 23, 1985. Pilipinas, Inc. v. Iglesia ng Dios Kay Cristo Jesus, Haligi at
Suhay ng Katotohanan. In that case, Iglesia ng Dios Kay
In this case, respondent was incorporated in 1969 as Cristo Jesus filed a case before the SEC to compel Ang
Family Savings Bank and in 1985 as BPI Family Bank. mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus to
Petitioner, on the other hand, was incorporated as GSIS change its corporate name, and to prevent it from using
Family – Thrift Bank only in 2002, or at least seventeen the same or similar name on the ground that the same
(17) years after respondent started using its name. causes confusion among their members as well as the
Following the precedent in the IRCP case, we rule that public. Ang mga Kaanib sa Iglesia ng Dios Kay Kristo
respondent has the prior right over the use of the Hesus claimed that it complied with SEC Memorandum
corporate name. Circular No. 14-2000 by adding not only two, but eight
words to their registered name, to wit: "Ang Mga
The second requisite in the Philips Export case likewise Kaanib" and "Sa Bansang Pilipinas, Inc.," which
obtains on two points: the proposed name is (a) effectively distinguished it from Iglesia ng Dios Kay
identical or (b) deceptive or confusingly similar to that Cristo Jesus. This Court rejected the argument, thus:
of any existing corporation or to any other name
already protected by law. The additional words "Ang Mga Kaanib" and "Sa
Bansang Pilipinas, Inc." in petitioner's name are, as
On the first point (a), the words "Family Bank" present correctly observed by the SEC, merely descriptive of and
94 in both petitioner and respondent's corporate name CORPORATION LAW CASE DIGESTS | 1
also referring to the members, or kaanib, of respondent
satisfy the requirement that there be identical names in who are likewise residing in the Philippines. These
the existing corporate name and the proposed one. words can hardly serve as an effective differentiating
Respondent cannot justify its claim under Section 3 of medium necessary to avoid confusion or difficulty in
the Revised Guidelines in the Approval of Corporate and distinguishing petitioner from respondent. This is
Partnership Names, to wit: especially so, since both petitioner and respondent
corporations are using the same acronym – H.S.K.; not
3. The name shall not be identical, misleading or to mention the fact that both are espousing religious
confusingly similar to one already registered by another beliefs and operating in the same place. Xxx
corporation or partnership with the Commission or a
sole proprietorship registered with the Department of On the second point (b), there is a deceptive and
Trade and Industry. confusing similarity between petitioner's proposed
name and respondent's corporate name, as found by
If the proposed name is similar to the name of a the SEC. In determining the existence of confusing
registered firm, the proposed name must contain at similarity in corporate names, the test is whether the
least one distinctive word different from the name of similarity is such as to mislead a person using ordinary
the company already registered. care and discrimination. And even without such proof of
actual confusion between the two corporate names, it
Section 3 states that if there be identical, misleading or
suffices that confusion is probable or likely to occur.
confusingly similar name to one already registered by
another corporation or partnership with the SEC, the Petitioner's corporate name is "GSIS Family Bank—A
proposed name must contain at least one distinctive Thrift Bank" and respondent's corporate name is "BPI
word different from the name of the company already Family Bank." The only words that distinguish the two
registered. To show contrast with respondent's are "BPI," "GSIS," and "Thrift." The first two words are
corporate name, petitioner used the words "GSIS" and merely the acronyms of the proper names by which the
"thrift." But these are not sufficiently distinct words that two corporations identify themselves; and the third
differentiate petitioner's corporate name from word simply describes the classification of the bank. The
respondent's. While "GSIS" is merely an acronym of the overriding consideration in determining whether a
 person, using ordinary care and discrimination, might be whether they are a descriptive term, i.e., whether they
misled is the circumstance that both petitioner and relate to the quality or description of the merchandise
respondent are engaged in the same business of to which respondent has applied them as a trade-mark.
banking. "The likelihood of confusion is accentuated in The word "ang" is a definite article meaning "the" in
cases where the goods or business of one corporation English. It is also used as an adverb, a contraction of the
are the same or substantially the same to that of word "anong" (what or how). For instance, instead of
another corporation." saying, "Anong ganda!" ("How beautiful!"), we
ordinarily say, "Ang ganda!" Tibay is a root word from
Findings of fact of quasi-judicial agencies, like the SEC, which are derived the verb magpatibay (to strengthen);
are generally accorded respect and even finality by this the nouns pagkamatibay (strength, durability),
Court, if supported by substantial evidence, in katibayan (proof, support, strength), katibaytibayan
recognition of their expertise on the specific matters (superior strength); and the adjectives matibay (strong,
under their consideration, more so if the same has been durable, lasting), napakatibay (very strong), kasintibay
upheld by the appellate court, as in this case. or magkasintibay (as strong as, or of equal strength).
Petitioner cannot argue that the word "family" is a The phrase "Ang Tibay" is an exclamation denoting
generic or descriptive name, which cannot be admiration of strength or durability. For instance, one
appropriated exclusively by respondent. "Family," as who tries hard but fails to break an object exclaims,
used in respondent's corporate name, is not generic. "Ang tibay!" ("How strong!") It may also be used in a
Generic marks are commonly used as the name or sentence thus, "Ang tibay ng sapatos mo!" ("How
description of a kind of goods, such as "Lite" for beer or durable your shoes are!") The phrase "ang tibay" is
"Chocolate Fudge" for chocolate soda drink. Descriptive never used adjectively to define or describe an object.
marks, on the other hand, convey the characteristics, One does not say, "ang tibay sapatos" or "sapatos ang
function, qualities or ingredients of a product to one tibay" to mean "durable shoes," but "matibay na
who has never seen it or does not know it exists, such as sapatos" or "sapatos na matibay."
"Arthriticare" for arthritis medication. From all of this we deduce that "Ang Tibay" is not a
Under the facts of this case, the word "family" cannot descriptive term within the meaning of the Trade-Mark
95 be separated from the word "bank." In asserting their Law but rather CORPORATION
a fanciful or coined phrase
LAW CASE which |may
DIGESTS 1
claims before the SEC up to the Court of Appeals, both properly and legally be appropriated as a trade-mark or
petitioner and respondent refer to the phrase "Family trade-name. Xxx (Underscoring supplied).
Bank" in their submissions. This coined phrase, neither The word "family" is defined as "a group consisting of
being generic nor descriptive, is merely suggestive and parents and children living together in a household" or
may properly be regarded as arbitrary. Arbitrary marks "a group of people related to one another by blood or
are "words or phrases used as a mark that appear to be marriage." Bank, on the other hand, is defined as "a
random in the context of its use. They are generally financial establishment that invests money deposited by
considered to be easily remembered because of their customers, pays it out when requested, makes loans at
arbitrariness. They are original and unexpected in interest, and exchanges currency."
relation to the products they endorse, thus, becoming
themselves distinctive." Suggestive marks, on the other By definition, there can be no expected relation
hand, "are marks which merely suggest some quality or between the word "family" and the banking business of
ingredient of goods. xxx The strength of the suggestive respondent. Rather, the words suggest that
marks lies on how the public perceives the word in respondent’s bank is where family savings should be
relation to the product or service." deposited. More, as in the Ang case, the phrase "family
bank" cannot be used to define an object.
In Ang v. Teodoro, this Court ruled that the words "Ang
Tibay" is not a descriptive term within the meaning of Petitioner’s argument that the opinion of the BSP and
the Trademark Law but rather a fanciful or coined the certificate of registration granted to it by the DTI
phrase. In so ruling, this Court considered the constitute authority for it to use "GSIS Family Bank" as
etymology and meaning of the Tagalog words, "Ang corporate name is also untenable.
Tibay" to determine whether they relate to the quality
The enforcement of the protection accorded by Section
or description of the merchandise to which respondent
therein applied them as trademark, thus: 18 of the Corporation Code to corporate names is
lodged exclusively in the SEC. The jurisdiction of the SEC
We find it necessary to go into the etymology and is not merely confined to the adjudicative functions
meaning of the Tagalog words "Ang Tibay" to determine provided in Section 5 of the SEC Reorganization Act, as
 amended. By express mandate, the SEC has absolute LYCEUM OF APARRI ET AL.
jurisdiction, supervision and control over all
corporations. It is the SEC’s duty to prevent confusion in FACTS:
the use of corporate names not only for the protection Petitioner is an educational institution duly registered
of the corporations involved, but more so for the with the Securities and Exchange Commission ("SEC").
protection of the public. It has authority to de-register When it first registered with the SEC on 21 September
at all times, and under all circumstances corporate 1950, it used the corporate name Lyceum of the
names which in its estimation are likely to generate Philippines, Inc. and has used that name ever since.
confusion.
On 24 February 1984, petitioner instituted proceedings
The SEC correctly applied Section 18 of the Corporation before the SEC to compel the private respondents
Code, and Section 15 of SEC Memorandum Circular No. (educational institutions) to delete the word "Lyceum"
14-2000, pertinent portions of which provide: from their corporate names and permanently to enjoin
In implementing Section 18 of the Corporation Code of them from using "Lyceum" as part of their respective
names.
the Philippines (BP 69), the following revised guidelines
in the approval of corporate and partnership names are Some of the private respondents actively participated in
hereby adopted for the information and guidance of all the proceedings before the SEC. These are the
concerned: following, the dates of their original SEC registration
being set out below opposite their respective names:
15. Registrant corporations or partnership shall submit a
letter undertaking to change their corporate or Western Pangasinan Lyceum — 27 October 1950
partnership name in case another person or firm has
acquired a prior right to the use of the said firm name or Lyceum of Cabagan — 31 October 1962
the same is deceptively or confusingly similar to one
Lyceum of Lallo, Inc. — 26 March 1972
already registered unless this undertaking is already
included as one of the provisions of the articles of Lyceum of Aparri — 28 March 1972
incorporation or partnership of the registrant.
96 Lyceum of Tuao,CORPORATION LAW
Inc. — 28 March CASE DIGESTS | 1
1972
The SEC, after finding merit in respondent's claims, can
compel petitioner to abide by its commitment "to Lyceum of Camalaniugan — 28 March 1972
change its corporate name in the event that another
The following private respondents were declared in
person, firm or entity has acquired a prior right to use of
default for failure to file an answer despite service of
said name or one similar to it."
summons:
Clearly, the only determination relevant to this case is
Buhi Lyceum;
that one made by the SEC in the exercise of its express
mandate under the law. The BSP opinion invoked by Central Lyceum of Catanduanes;
petitioner even acknowledges that "the issue on
whether a proposed name is identical or deceptively Lyceum of Eastern Mindanao, Inc.; and
similar to that of any of existing corporation is matter
Lyceum of Southern Philippines
within the official jurisdiction and competence of the
SEC." Petitioner's original complaint before the SEC had
included three (3) other entities:
Judicial notice may also be taken of the action of the
IPO in approving respondent’s registration of the 1. The Lyceum of Malacanay;
trademark "BPI Family Bank" and its logo on October
17, 2008. The certificate of registration of a mark shall 2. The Lyceum of Marbel; and
be prima facie evidence of the validity of the
3. The Lyceum of Araullo
registration, the registrant’s ownership of the mark, and
of the registrant’s exclusive right to use the same in The complaint was later withdrawn insofar as
connection with the goods or services and those that concerned the Lyceum of Malacanay and the Lyceum of
are related thereto specified in the certificate. Marbel, for failure to serve summons upon these two
(2) entities. The case against the Liceum of Araullo was
dismissed when that school motu proprio change its
6) LYCEUM OF THE PHILIPPINES vs corporate name to "Pamantasan ng Araullo."
 Petitioner had sometime before commenced in the SEC Orders of the SEC En Banc. Petitioner filed a motion for
a proceeding (SEC-Case No. 1241) against the Lyceum of reconsideration, without success.
Baguio, Inc. to require it to change its corporate name
ISSUES:
and to adopt another name not "similar [to] or
identical" with that of petitioner. In an Order dated 20 1. WON the Court of Appeals erred in holding that
April 1977, Associate Commissioner Julio Sulit held that respondent Western Pangasinan Lyceum, Inc. was
the corporate name of petitioner and that of the incorporated earlier than petitioner.
Lyceum of Baguio, Inc. were substantially identical
because of the presence of a "dominant" word, i.e., 2. WON he Court of Appeals erred in holding that the
"Lyceum," the name of the geographical location of the word Lyceum has not acquired a secondary meaning in
campus being the only word which distinguished one favor of petitioner.
from the other corporate name. The SEC also noted that
3. WON the Court of Appeals erred in holding that
petitioner had registered as a corporation ahead of the
Lyceum as a generic word cannot be appropriated by
Lyceum of Baguio, Inc. in point of time, 1 and ordered
the petitioner to the exclusion of others.
the latter to change its name to another name "not
similar or identical [with]" the names of previously RULING:
registered entities.
The Articles of Incorporation of a corporation must,
The Lyceum of Baguio, Inc. assailed the Order of the SEC among other things, set out the name of the
before the Supreme Court. In a Minute Resolution corporation. Section 18 of the Corporation Code
dated 14 September 1977, the Court denied the Petition establishes a restrictive rule insofar as corporate names
for Review for lack of merit. Entry of judgment in that are concerned:
case was made on 21 October 1977.
"SECTION 18. Corporate name. — No corporate name
Petitioner then wrote all the educational institutions it may be allowed by the Securities an Exchange
could find using the word "Lyceum" as part of their Commission if the proposed name is identical or
corporate name, and advised them to discontinue such deceptively or confusingly similar to that of any existing
use of "Lyceum." When, with the passage of time, it corporation or to any other name already protected
97 CORPORATION LAW CASE DIGESTS | 1by
became clear that this recourse had failed, petitioner law or is patently deceptive, confusing or contrary to
instituted before the SEC SEC-Case No. 2579 to enforce existing laws. When a change in the corporate name is
what petitioner claims as its proprietary right to the approved, the Commission shall issue an amended
word "Lyceum." The SEC hearing officer rendered a certificate of incorporation under the amended name."
decision sustaining petitioner's claim to an exclusive (Emphasis supplied)
right to use the word "Lyceum." The hearing officer
relied upon the SEC ruling in the Lyceum of Baguio, Inc. The policy underlying the prohibition in Section 18
case (SEC-Case No. 1241) and held that the word against the registration of a corporate name which is
"Lyceum" was capable of appropriation and that "identical or deceptively or confusingly similar" to that
petitioner had acquired an enforceable exclusive right of any existing corporation or which is "patently
to the use of that word. deceptive" or "patently confusing" or "contrary to
existing laws," is the avoidance of fraud upon the public
On appeal, the decision of the hearing officer was which would have occasion to deal with the entity
reversed and set aside. The SEC En Banc did not concerned, the evasion of legal obligations and duties,
consider the word "Lyceum" to have become so and the reduction of difficulties of administration and
identified with petitioner as to render use thereof by supervision over corporations.
other institutions as productive of confusion about the
identity of the schools concerned in the mind of the
general public. Unlike its hearing officer, the SEC En
Banc held that the attaching of geographical names to
the word "Lyceum" served sufficiently to distinguish the
schools from one another, especially in view of the fact
that the campuses of petitioner and those of the private
respondents were physically quite remote from each
other.

Petitioner then went on appeal to the Court of Appeals.

However, the Court of Appeals affirmed the questioned
 We do not consider that the corporate names of private The doctrine of secondary meaning originated in the
respondent institutions are "identical with, or field of trademark law. Its application has, however,
deceptively or confusingly similar" to that of the been extended to corporate names sine the right to use
petitioner institution. True enough, the corporate a corporate name to the exclusion of others is based
names of private respondent entities all carry the word upon the same principle which underlies the right to use
"Lyceum" but confusion and deception are effectively a particular trademark or tradename. In Philippine Nut
precluded by the appending of geographic names to the Industry, Inc. v. Standard Brands, Inc., the doctrine of
word "Lyceum." Thus, we do not believe that the secondary meaning was elaborated in the following
"Lyceum of Aparri" can be mistaken by the general terms:
public for the Lyceum of the Philippines, or that the
"Lyceum of Camalaniugan" would be confused with the " . . . a word or phrase originally incapable of exclusive
appropriation with reference to an article on the
Lyceum of the Philippines.
market, because geographically or otherwise
Etymologically, the word "Lyceum" is the Latin word for descriptive, might nevertheless have been used so long
the Greek lykeion which in turn referred to a locality on and so exclusively by one producer with reference to his
the river Ilissius in ancient Athens "comprising an article that, in that trade and to that branch of the
enclosure dedicated to Apollo and adorned with purchasing public, the word or phrase has come to
fountains and buildings erected by Pisistratus, Pericles mean that the article was his product."
and Lycurgus frequented by the youth for exercise and
by the philosopher Aristotle and his followers for "Under the doctrine of secondary meaning, a word or
phrase originally incapable of exclusive appropriation
teaching." In time, the word "Lyceum" became
associated with schools and other institutions providing with reference to an article in the market, because
geographical or otherwise descriptive might
public lectures and concerts and public discussions.
Thus today, the word "Lyceum" generally refers to a nevertheless have been used so long and so exclusively
by one producer with reference to this article that, in
school or an institution of learning. While the Latin word
"lyceum" has been incorporated into the English that trade and to that group of the purchasing public,
the word or phrase has come to mean that the article
language, the word is also found in Spanish (liceo) and
in French (lycee). was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil.
98 CORPORATION LAW CASE DIGESTS | 1
56). This circumstance has been referred to as the
As the Court of Appeals noted in its Decision, Roman distinctiveness into which the name or phrase has
Catholic schools frequently use the term; e.g., "Liceo de evolved through the substantial and exclusive use of the
Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo same for a considerable period of time. Consequently,
de Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as the same doctrine or principle cannot be made to apply
generic in character as the word "university." In the where the evidence did not prove that the business (of
name of the petitioner, "Lyceum" appears to be a the plaintiff) has continued for so long a time that it has
substitute for "university;" in other places, however, become of consequence and acquired a good will of
"Lyceum," or "Liceo" or "Lycee" frequently denotes a considerable value such that its articles and produce
secondary school or a college. It may be (though this is a have acquired a well-known reputation, and confusion
question of fact which we need not resolve) that the will result by the use of the disputed name (by the
use of the word "Lyceum" may not yet be as widespread defendant) (Ang Si Heng vs. Wellington Department
as the use of "university," but it is clear that a not Store, Inc., 92 Phil. 448).
inconsiderable number of educational institutions have
adopted "Lyceum" or "Liceo" as part of their corporate With the foregoing as a yardstick, [we] believe the
appellant failed to satisfy the aforementioned
names. Since "Lyceum" or "Liceo" denotes a school or
institution of learning, it is not unnatural to use this requisites. No evidence was ever presented in the
hearing before the Commission which sufficiently
word to designate an entity which is organized and
operating as an educational institution. proved that the word 'Lyceum' has indeed acquired
secondary meaning in favor of the appellant. If there
It is claimed, however, by petitioner that the word was any of this kind, the same tend to prove only that
"Lyceum" has acquired a secondary meaning in relation the appellant had been using the disputed word for a
to petitioner with the result that that word, although long period of time. Nevertheless, its (appellant)
originally a generic, has become appropriable by exclusive use of the word (Lyceum) was never
petitioner to the exclusion of other institutions like established or proven as in fact the evidence tend to
private respondents herein. convey that the cross-claimant was already using the
word 'Lyceum' seventeen (17) years prior to the date
the appellant started using the same word in its
 corporate name. Furthermore, educational institutions Philippines nor an exclusive use thereof. Petitioner's use
of the Roman Catholic Church had been using the same of the word "Lyceum" was not exclusive but was in truth
or similar word like 'Liceo de Manila,' 'Liceo de Baleno' shared with the Western Pangasinan Lyceum and a little
(in Baleno, Masbate), 'Liceo de Masbate,' 'Liceo de later with other private respondent institutions which
Albay' long before appellant started using the word registered with the SEC using "Lyceum" as part of their
'Lyceum'. The appellant also failed to prove that the corporation names. There may well be other schools
word 'Lyceum' has become so identified with its using Lyceum or Liceo in their names, but not registered
educational institution that confusion will surely arise in with the SEC because they have not adopted the
the minds of the public if the same word were to be corporate form of organization.
used by other educational institutions.
We conclude and so hold that petitioner institution is
In other words, while the appellant may have proved not entitled to a legally enforceable exclusive right to
that it had been using the word 'Lyceum' for a long use the word "Lyceum" in its corporate name and that
period of time, this fact alone did not amount to mean other institutions may use "Lyceum" as part of their
that the said word had acquired secondary meaning in corporate names. To determine whether a given
its favor because the appellant failed to prove that it corporate name is "identical" or "confusingly or
had been using the same word all by itself to the deceptively similar" with another entity's corporate
exclusion of others. More so, there was no evidence name, it is not enough to ascertain the presence of
presented to prove that confusion will surely arise if the "Lyceum" or "Liceo" in both names. One must evaluate
same word were to be used by other educational corporate names in their entirety and when the name of
institutions. Consequently, the allegations of the petitioner is juxtaposed with the names of private
appellant in its first two assigned errors must respondents, they are not reasonably regarded as
necessarily fail." 13 (Underscoring partly in the original "identical" or "confusingly or deceptively similar" with
and partly supplied) each other.

We agree with the Court of Appeals. The number alone 7) ANG MGA KAANIB SA IGLESIA NG DIOS vs
of the private respondents in the case at bar suggests
IGLESIA NG DIOS
strongly that petitioner's use of the word "Lyceum" has
99 CORPORATION LAW CASE DIGESTS | 1
not been attended with the exclusivity essential for FACTS:
applicability of the doctrine of secondary meaning. It
may be noted also that at least one of the private Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at
respondents, i.e., the Western Pangasinan Lyceum, Inc., Suhay ng Katotohanan (Church of God in Christ Jesus,
used the term "Lyceum" seventeen (17) years before the Pillar and Ground of Truth), is a non-stock religious
the petitioner registered its own corporate name with society or corporation registered in 1936. Sometime in
the SEC and began using the word "Lyceum." It follows 1976, one Eliseo Soriano and several other members of
that if any institution had acquired an exclusive right to respondent corporation disassociated themselves from
the word "Lyceum," that institution would have been the latter and succeeded in registering on March 30,
the Western Pangasinan Lyceum, Inc. rather than the 1977 a new non-stock religious society or corporation,
petitioner institution. named Iglesia ng Dios Kay Kristo Hesus, Haligi at
Saligan ng Katotohanan.
In this connection, petitioner argues that because the
Western Pangasinan Lyceum, Inc. failed to reconstruct On July 16, 1979, respondent corporation filed with the
its records before the SEC in accordance with the SEC a petition to compel the Iglesia ng Dios Kay Kristo
provisions of R.A. No. 62, which records had been Hesus, Haligi at Saligan ng Katotohanan to change its
destroyed during World War II, Western Pangasinan corporate name. On May 4, 1988, the SEC rendered
Lyceum should be deemed to have lost all rights it may judgment in favor of respondent, ordering the Iglesia
have acquired by virtue of its past registration. It might ng Dios Kay Kristo Hesus, Haligi at Saligan ng
be noted that the Western Pangasinan Lyceum, Inc. Katotohanan to change its corporate name to another
registered with the SEC soon after petitioner had filed name that is not similar or identical to any name already
its own registration on 21 September 1950. Whether or used by a corporation, partnership or association
not Western Pangasinan Lyceum, Inc. must be deemed registered with the Commission. No appeal was taken
to have lost its rights under its original 1933 from said decision.
registration, appears to us to be quite secondary in
It appears that during the pendency of the case,
importance; we refer to this earlier registration simply
Soriano, et al., caused the registration on April 25, 1980
to underscore the fact that petitioner's use of the word
of petitioner corporation, Ang Mga Kaanib sa Iglesia ng
"Lyceum" was neither the first use of that term in the
 Dios Kay Kristo Hesus, H.S.K., sa Bansang Pilipinas. The deceptive, confusing or is contrary to existing laws.
acronym H.S.K. stands for Haligi at Saligan ng When a change in the corporate name is approved, the
Katotohanan. Commission shall issue an amended certificate of
incorporation under the amended name.
On March 2, 1994, respondent corporation filed before
the SEC a petition(SEC Case No. 03-94-4704), praying Corollary thereto, the pertinent portion of the SEC
that petitioner be compelled to change its corporate Guidelines on Corporate Names states:
name and be barred from using the same or similar
(d) If the proposed name contains a word similar to a
name on the ground that the same causes confusion
among their members as well as the public. word already used as part of the firm name or style of a
registered company, the proposed name must contain
Petitioner filed a motion to dismiss on the ground of two other words different from the name of the
lack of cause of action. The motion to dismiss was company already registered;
denied. Petitioner failed to file an answer was declared
in default and respondent was allowed to present its Parties organizing a corporation must choose a name at
their peril; and the use of a name similar to one
evidence ex parte.
adopted by another corporation, whether a business or
On November 20, 1995, the SEC rendered a decision a nonprofit organization, if misleading or likely to injure
stating that Respondent Mga Kaanib sa Iglesia ng Dios in the exercise of its corporate functions, regardless of
Kay Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas intent, may be prevented by the corporation having a
(petitioner herein) is hereby MANDATED to change its prior right, by a suit for injunction against the new
corporate name to another not deceptively similar or corporation to prevent the use of the name.
identical to the same already used by the Petitioner,
any corporation, association, and/or partnership Petitioner claims that it complied with the aforecited
SEC guideline by adding not only two but eight words to
presently registered with the Commission.
their registered name, to wit: Ang Mga Kaanib" and "Sa
Petitioner appealed to the SEC En Banc, where its Bansang Pilipinas, Inc., which, petitioner argues,
appeal was docketed as SEC-AC No. 539. In a decision effectively distinguished it from respondent
100 dated March 4, 1996, the SEC En Banc affirmed the corporation. CORPORATION LAW CASE DIGESTS | 1
above decision, upon a finding that petitioner's
corporate name was identical or confusingly or The additional words Ang Mga Kaanib and Sa Bansang
deceptively similar to that of respondents corporate Pilipinas, Inc. in petitioners name are, as correctly
name. observed by the SEC, merely descriptive of and also
referring to the members, or kaanib, of respondent who
Petitioner filed a petition for review with the Court of are likewise residing in the Philippines. These words can
Appeals. The Court of Appeals rendered the assailed hardly serve as an effective differentiating medium
decision affirming the decision of the SEC En Banc. necessary to avoid confusion or difficulty in
Petitioners motion for reconsideration was denied by distinguishing petitioner from respondent. This is
the Court of Appeals. Hence, the instant petition for especially so, since both petitioner and respondent
review. corporations are using the same acronym --- H.S.K.; not
to mention the fact that both are espousing religious
ISSUE: beliefs and operating in the same place. Parenthetically,
WHETHER OR NOT THE HONORABLE COURT OF it is well to mention that the acronym H.S.K. used by
APPEALS FAILED TO CONSIDER AND PROPERLY APPLY petitioner stands for Haligi at Saligan ng Katotohanan.
THE EXCEPTIONS ESTABLISHED BY JURISPRUDENCE IN Then, too, the records reveal that in holding out their
THE APPLICATION OF SECTION 18 OF THE corporate name to the public, petitioner highlights the
CORPORATION CODE TO THE INSTANT CASE dominant words IGLESIA NG DIOS KAY KRISTO HESUS,
RULING: HALIGI AT SALIGAN NG KATOTOHANAN, which is
strikingly similar to respondent's corporate name, thus
Section 18 of the Corporation Code provides: making it even more evident that the additional words
Ang Mga Kaanib and Sa Bansang Pilipinas, Inc., are
Corporate Name. --- No corporate name may be allowed
merely descriptive of and pertaining to the members of
by the Securities and Exchange Commission if the
respondent corporation.
proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any Significantly, the only difference between the corporate
other name already protected by law or is patently names of petitioner and respondent are the words
 SALIGAN and SUHAY. These words are synonymous ---
both mean ground, foundation or support. Hence, this
case is on all fours with Universal Mills Corporation v.
Universal Textile Mills, Inc., where the Court ruled that
the corporate names Universal Mills Corporation and
Universal Textile Mills, Inc., are undisputably so similar
that even under the test of reasonable care and
observation confusion may arise.

Furthermore, the wholesale appropriation by petitioner

of respondent's corporate name cannot find
justification under the generic word rule. We agree with
the Court of Appeals conclusion that a contrary ruling
would encourage other corporations to adopt verbatim
and register an existing and protected corporate name,
to the detriment of the public.

The fact that there are other non-stock religious

societies or corporations using the names Church of the
Living God, Inc., Church of God Jesus Christ the Son of
God the Head, Church of God in Christ & By the Holy
Spirit, and other similar names, is of no consequence. It
does not authorize the use by petitioner of the essential
and distinguishing feature of respondent's registered
and protected corporate name.

(Religios Freedom Issue) Certainly, ordering petitioner

to change its corporate name is not a violation of its
101 constitutionally guaranteed right to religious freedom. CORPORATION LAW CASE DIGESTS | 1
In so doing, the SEC merely compelled petitioner to
abide by one of the SEC guidelines in the approval of
partnership and corporate names, namely its
undertaking to manifest its willingness to change its
corporate name in the event another person, firm, or
entity has acquired a prior right to the use of the said
firm name or one deceptively or confusingly similar to
it.
 8.) REPUBLIC PLANTERS BANK vs COURT OF APPEALS Manufacturing, Inc., the same were in blank, the
typewritten entries not appearing therein prior to the
time he affixed his signature.
FACTS
The Court of Appeals agreed with him. The CA also ruled
Defendant Shozo Yamaguchi and private respondent that the change of name of WGM to PMC extinguished
Fermin Canlas were President/Chief Operating Officer the personality of WGM and hence so is its liability.
and Treasurer respectively, of Worldwide Garment
Manufacturing, Inc.. By virtue of Board Resolution No.1 ISSUE:
dated August 1, 1979, defendant Shozo Yamaguchi and Whether or not the Court of Appeals is correct. NO
private respondent Fermin Canlas were authorized to
RULING:
apply for credit facilities with the petitioner Republic
Planters Bank in the forms of export advances and The respondent Court made a grave error in holding
letters of credit/trust receipts accommodations. that an amendment in a corporation's Articles of
Petitioner bank issued nine promissory notes, marked as Incorporation effecting a change of corporate name, in
Exhibits A to I inclusive, each of which were uniformly this case from Worldwide Garment manufacturing Inc to
worded in the following manner: Pinch Manufacturing Corporation extinguished the
personality of the original corporation.
___________, after date, for value received, I/we,
jointly and severaIly promise to pay to the ORDER of The corporation, upon such change in its name, is in no
the REPUBLIC PLANTERS BANK, at its office in sense a new corporation, nor the successor of the
Manila, Philippines, the sum of ___________ original corporation. It is the same corporation with a
PESOS(....) Philippine Currency... different name, and its character is in no respect
changed.
On the right bottom margin of the promissory notes
appeared the signatures of Shozo Yamaguchi and A change in the corporate name does not make a new
Fermin Canlas above their printed names with the corporation, and whether effected by special act or
phrase "and (in) his personal capacity" typewritten under a general law, has no affect on the identity of the
below. At the bottom of the promissory notes corporation, or on its property, rights, or liabilities.
appeared: "Please credit proceeds of this note to:
The corporation continues, as before, responsible in its
________ Savings Account ______XX Current new name for all debts or other liabilities which it had
Account previously contracted or incurred.
102 No. 1372-00257-6 CORPORATION
As a general rule, LAW CASEunder
officers or directors DIGESTS
the| old
1
corporate name bear no personal liability for acts done
of WORLDWIDE GARMENT MFG. CORP.
or contracts entered into by officers of the corporation,
if duly authorized. Inasmuch as such officers acted in
In the promissory notes marked as Exhibits C, D and F, their capacity as agent of the old corporation and the
the name Worldwide Garment Manufacturing, Inc. was change of name meant only the continuation of the old
apparently rubber stamped above the signatures of juridical entity, the corporation bearing the same name
defendant and private respondent. is still bound by the acts of its agents if authorized by
the Board. Under the Negotiable Instruments Law, the
On December 20, 1982, Worldwide Garment liability of a person signing as an agent is specifically
Manufacturing, Inc. noted to change its corporate name provided for as follows:
to Pinch Manufacturing Corporation.
Sec. 20. Liability of a person signing as
On February 5, 1982, petitioner bank filed a complaint agent and so forth. Where the
for the recovery of sums of money covered among instrument contains or a person adds to
others, by the nine promissory notes with interest his signature words indicating that he
thereon, plus attorney's fees and penalty charges. The signs for or on behalf of a principal , or
complainant was originally brought against Worldwide in a representative capacity, he is not
Garment Manufacturing, Inc. inter alia, but it was later liable on the instrument if he was duly
amended to drop Worldwide Manufacturing, Inc. as authorized; but the mere addition of
defendant and substitute Pinch Manufacturing words describing him as an agent, or as
Corporation it its place. filling a representative character,
Defendants Pinch Manufacturing Corporation and Shozo without disclosing his principal, does not
Yamaguchi did not file an Amended Answer and failed exempt him from personal liability.
to appear at the scheduled pre-trial conference despite Where the agent signs his name but nowhere in the
due notice. Only private respondent Fermin Canlas filed instrument has he disclosed the fact that he is acting in
an Amended Answer wherein he, denied having issued a representative capacity or the name of the third party
the promissory notes in question since according to him, for whom he might have acted as agent, the agent is
he was not an officer of Pinch Manufacturing personally liable to take holder of the instrument and
Corporation, but instead of Worldwide Garment cannot be permitted to prove that he was merely acting
Manufacturing, Inc., and that when he issued said as agent of another and parol or extrinsic evidence is
promissory notes in behalf of Worldwide Garment not admissible to avoid the agent's personal liability.
 executed two (2) separate indemnity agreements in
favor of Pioneer. The indemnity agreements stipulated
REGISTRATION AND ISSUANCE OF CERTIFICATE OF
that the indemnitors principally agree and bind
INCORPORATION
themselves jointly and severally to indemnify and hold
and save harmless Pioneer from and against any/all
DE FACTO CORPORATION: It is one which has not
damages, losses, costs, damages, taxes, penalties,
complied with all the requirements necessary to be a de charges and expenses of whatever kind and nature
jure corporation but has complied sufficiently to be which Pioneer may incur in consequence of having
accorded corporate status as against third parties become surety upon the bond/note and to pay,
although not against the State. reimburse and make good to Pioneer, its successors and
assigns, all sums and amounts of money which it or its
DE JURE CORPORATION: one created in strict or representatives should or may pay or cause to be paid
substantial conformity with the mandatory statutory or become liable to pay on them of whatever kind and
requirements for incorporation and the right of which nature. Moreover, Lim doing business under the name
to exist as a corporation cannot be successfully attacked and style of SAL executed in favor of Pioneer as deed of
chattel mortgage as security for the latter's suretyship in
or questioned by any party even in a direct proceeding
favor of the former. It was stipulated therein that Lim
for that purpose by the State. transfer and convey to the surety the two aircrafts.

Lim defaulted on his subsequent installment payments

prompting JDA to request payments from the surety.
7. REGISTRATION AND ISSUANCE OF CERTIFICATE OF
Pioneer paid a total sum of P298,626.12.
INCORPORATION
Pioneer filed an action for judicial foreclosure with an
I. DE FACTO CORPORATION
application for a writ of preliminary attachment against
Lim and respondents, the Cervanteses, Bormaheco and
1.) G.R. No. 84197 July 28, 1989 Maglana.

PIONEER INSURANCE & SURETY Maglana, Bormaheco and the Cervanteses filed cross-
CORPORATION, petitioner, vs. THE HON. COURT OF claims against Lim alleging that they were not privies to
APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, the contracts signed by Lim and, by way of
103 INC., (BORMAHECO), CONSTANCIO M. MAGLANA and CORPORATION LAW CASE DIGESTS | 1
counterclaim, sought for damages for being exposed to
JACOB S. LIM, respondents. litigation and for recovery of the sums of money they
advanced to Lim for the purchase of the aircrafts in
G.R. No. 84157 July 28, 1989 question.

JACOB S. LIM, petitioner, vs. COURT OF APPEALS, The RTC rendered a decision holding Lim liable to pay
PIONEER INSURANCE AND SURETY CORPORATION, Pioneer’s complaint but dismissed the latter’s complaint
BORDER MACHINERY and HEAVY EQUIPMENT CO., against all other defendants.
INC,, FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA, respondents. The CA modified the RTC’s decision in that all the claim
of Pioneer against all the defendant was dismissed.
FACTS: Jacob S. Lim was engaged in the airline business Hence this petition.
as owner-operator of Southern Air Lines (SAL) a single
proprietorship. Japan Domestic Airlines (JDA) and Lim In G.R. No. 84197 Pioneer Insurance and Surety
entered into and executed a sales contract for the sale Corporation averred that respondent Court of Appeals
and purchase of two (2) DC-3A Type aircrafts and one grievously erred when it dismissed the appeal of
(1) set of necessary spare parts for the total agreed petitioner on the sole ground that petitioner had
price of US $109,000.00 to be paid in installments. already collected the proceeds of the reinsurance on its
bond in favor of the JDA and that it cannot represent a
Pioneer Insurance and Surety Corporation as surety reinsurer to recover the amount from herein private
executed and issued its Surety Bond No. 6639 in favor of respondents.
JDA, in behalf of its principal, Lim, for the balance price
of the aircrafts and spare parts.

It appears that Border Machinery and Heavy Equipment

Company, Inc. (Bormaheco), Francisco and Modesto
Cervantes (Cervanteses) and Constancio Maglana
(respondents in both petitions) contributed some funds
amounting to Pl51,000.00 used in the purchase of the
above aircrafts and spare parts. The funds were
supposed to be their contributions to a new corporation
proposed by Lim to expand his airline business. They
 On the other hand, in G.R. No. 84157 petitioner Jacob S. to the cross-claims of the respondents to the effect that
Lim averred that the appellate court erred in its findings they were induced and lured by the petitioner to make
ordering him to reimburse certain amounts given by the contributions to a proposed corporation which was
respondents to the petitioner as their contributions to never formed because the petitioner reneged on their
the intended corporation since according to him as a agreement.
result of their failure to incorporate, a  de
facto partnership among them was created, and that as Applying therefore the principles of law earlier cited to
a consequence of such relationship all must share in the the facts of the case, necessarily, no de facto
losses and/or gains of the venture in proportion to their partnership was created among the parties which would
contribution. entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The
ISSUE: 1. Whether Pioneer has a cause of action against record shows that the petitioner was acting on his own
respondents. NONE and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
2. Whether the failure of respondents and Lim
to incorporate automatically resulted to de facto 2.) Pioneer Insurance vs CA ( same as case# 1)
partnership. NO
CORPORATION BY ESTOPPEL: one which in reality is not
RULING: 1.The real party in interest was the reinsurance a corporation, either de jure or de facto, because it is so
company who paid Pioneer the amount of P295,000.00 defectively formed, but is considered a corporation in
representing the obligation of respondents to Pioneer. relation to those only who, by reason of their acts or
There was no indication in the complaint that Pioneer is admissions, are precluded from asserting that it is not a
suing as attorney-in-fact of the reinsurers for any corporation.
amount. It is clear from the records that Pioneer sued in
its own name and not as an attorney-in-fact of the II. CORPORATION BY ESTOPPEL
reinsurer. Petitioner was not the real party in interest in
the complaint, and, therefore, has no cause of action 1.) G.R. No. 117010 April 18, 1997
against the respondents. Pioneer has no right to
institute and maintain in its own name an action for the PEOPLE OF THE PHILIPPINES, plaintiff-appellee,  vs.
benefit of the reinsurers. It is well-settled that an action ENGR. CARLOS GARCIA y PINEDA, PATRICIO BOTERO y
brought by an attorney-in-fact in his own name instead VALES, LUISA MIRAPLES (at large), accused, PATRICIO
104 CORPORATION LAW CASE DIGESTS | 1
of that of the principal will not prosper. BOTERO y VALES, accused-appellant.

2. It is ordinarily held that persons who attempt, but FACTS: In an Information dated July 21, 1992, accused-
fail, to form a corporation and who carry on business appellant Patricio Botero together with Carlos P. Garcia
under the corporate name occupy the position of and Luisa Miraples were charged with the crime of
partners inter se. Where persons associate themselves illegal recruitment in large scale.
together under articles to purchase property to carry on
a business, and their organization is so defective as to Six (6) out of the sixteen (16) complainants testified as
come short of creating a corporation within the statute, prosecution witnesses. These complainants testified
they become in legal effect partners inter se, and their that on various dates in March 1992, they went to
rights as members of the company to the property Ricorn Philippine International Shipping Lines, Inc.
acquired by the company will be recognized. (Ricorn), an entity which recruits workers for overseas
employment. They applied as seamen, cook, waiter,
However, the abocementioned doctrine is not chambermaid or laundrywoman overseas. All the other
applicable in this case since there was really no complainants coursed their application to accused
intention to form a corporation. Garcia who represented himself as president of
Ricorn. Complainants were required to submit their NBI
It must be noted in the answer of Lim that he denied and police clearance, birth certificate, passport,
having received any amount from respondents seaman's book and Survival of Life at Sea (SOLAS). As
Bormaheco, the Cervanteses and Maglana. The trial they did not have the last three (3) documents, they
court and the appellate court, however, found through were asked to pay five thousand pesos (P5,000.00) as
Exhibit 58, that the petitioner received the amount of processing fee. They paid to Ricorn's treasurer, Luisa
P151,000.00 representing the participation of Miraples. They were issued receipts signed by Miraples.
Bormaheco and Atty. Constancio B. Maglana in the The receipts were under Ricorn's heading.
ownership of the subject airplanes and spare parts. The
record shows that defendant Maglana gave P75,000.00 Complainants went back to Ricorn to check on their
to petitioner Jacob Lim thru the Cervanteses. applications. They discovered that Ricorn had
abandoned its office for non-payment of rentals. They
It is therefore clear that the petitioner never had the went back to the building several times to recover their
intention to form a corporation with the respondents money. Their persistence was to no avail for Garcia and
despite his representations to them. This gives credence Botero were nowhere to be found. They then went to
 the Mandaluyong Police Station and filed their 2.) For engaging in recruitment of workers without
complaints. They also checked with the Securities and obtaining the necessary license from the POEA, Boteros
Exchange Commission (SEC) and discovered that Ricorn should suffer the consequences of Ricorn's illegal act for
was not yet incorporated. They also found that Ricorn "(i)f the offender is a corporation, partnership,
was not licensed by the Department of Labor and association or entity, the penalty shall be imposed upon
Employment (DOLE) to engage in recruitment activities. the officer or officers of the corporation, partnership,
association or entity responsible for violation; . . . " 
The RTC convicted Garcia and Botero for the crime of
illegal recruitment but the case against Miraples was The evidence shows that appellant Botero was one of
archived by the court since she has remained at large. the incorporators of Ricorn. For reasons that cannot be
discerned from the records, Ricorn's incorporation was
Only accused Botero, thru counsel, filed a Notice of not consummated. Even then, appellant cannot avoid
Appeal. his liabilities to the public as an incorporator of Ricorn.
He and his co-accused Garcia held themselves out to
ISSUE: 1.) Whether respondents are liable for illegal the public as officers of Ricorn. They received money
recruitment in large scale. - YES from applicants who availed of their services. They are
thus estopped from claiming that they are not liable as
2.) Whether respondents are liable as corporate officials corporate officials of Ricorn. Section 25 of the
considering that Ricorn's incorporation was not Corporation Code provides that "(a)ll persons who
consummated. -YES assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for
RULING: all the debts, liabilities and damages incurred or arising
as a result thereof: Provided, however, That when any
1.) Beyond any reasonable doubt, appellant Botero such ostensible corporation is sued on any transaction
engaged in recruitment and placement activities in that entered by it as a corporation or on any tort committed
he, through Ricorn, promised the complainants by it as such, it shall not be allowed to use as a defense
employment abroad. Under the Labor Code, its lack of corporate personality."
recruitment and placement refers to "any act of
canvassing, enlisting, contracting, transporting, utilizing, Appellant Botero is guilty of the crime of illegal
hiring or procuring workers, and includes referrals, recruitment in a large scale considering it was proven
contract services, promising or advertising for that he, together with his cohorts, were able to defraud
105 CORPORATION LAW CASE DIGESTS | 1
employment, locally or abroad whether for profit or the six complainant-witnesses in this case. Under Article
not: Provided, That any person or entity which in any 38 (b) of the Labor Code, illegal recruitment in large
manner, offers or promises for a fee employment to scale is perpetrated if committed against three (3) or
two or more persons shall be deemed engaged in more persons individually or as a group. And under
recruitment, and placement."  Article 39 (a) of the same Code, accused-appellant's
crime is punishable by life imprisonment and a fine of
All the essential elements of the crime of illegal one hundred thousand pesos (P100,000.00).
recruitment in large scale are present in this case, to
wit: Finally, it is fruitless for appellant to deny he conspired
with his co-accused to commit the crime at bar. The fact
(1) the accused engages in the recruitment and that all the accused were co-conspirators in defrauding
placement of workers, as defined under Article 13 (b) or the complainants could be inferred from their acts. They
in any prohibited activities under Article 34 of the Labor played different roles in defrauding complainants:
Code; accused Garcia was the president, appellant Botero was
the vice-president and accused-at-large Miraples was
(2) accused has not complied with the guidelines issued the treasurer of Ricorn. Each one played a part in the
by the Secretary of Labor and Employment, particularly recruitment of complainants. They were indispensable
with respect to the securing of a license or an authority to each other.
to recruit and deploy workers, either locally or overseas;
and 2.) G.R. No. L-84502 June 30, 1989

(3) accused commits the same against three (3) or more CHRISTIAN CHILDREN'S FUND, petitioner,  vs.
persons, individually or as a group. NATIONAL LABOR RELATIONS COMMISSION, LABOR
ARBITER RlCARDO OLAIREZ, ELIZABETH SALAO, FELISA
It is a fact that Ricorn had no license to recruit from MAMARIL, FELIPA PITOK, JOY GONSODEN and ELENA
DOLE. In the office of Ricorn, a notice was posted ECLARINO, respondents.
informing job applicants that its recruitment license is
still being processed. Yet, Ricorn already entertained CASE LAW/ DOCTRINE: When a third person has
applicants and collected fees for processing their travel entered into a contract with an association which
documents. represented itself to be a corporation, the association
will be estopped from denying its corporate capacity in
a suit against it by such third person.
 FACTS: Private Respondents Salao, Mamaril, et al These are eloquent indicators that the Cristo Regis
worked for the Cristo Regis Center, a charitable Center is not an agent of the petitioner. The contract
organization. Cristo Regis was in turn supported by was good for five (5) years, and it was renewed three
times, before the Cristo Regis Center ceased to operate.
Petitioner Christian Children’s Fund.
The contract is subject to termination when either the
petitioner or the Cristo Regis Center violates any of its
Petitioner Christian Children’s Fund was sued by private conditions.
Respondents for illegal dismissal when the Cristo Regis
Center closed down. The management of the Cristo Regis Center was
entrusted to the Benedictine Sisters. The Benedictine
The NLRC ruled against the Petitioners. Sisters eventually ceased management operations and
withdrew from said project of the Cristo Regis Center in
The petitioner alleged that it is not the employer of the 1984. Thus, the petitioner had no alternative but to
private respondents, they being employees of the engage another organization aside from the Cristo Regis
separate entity Cristo Regis Center; that the Cristo Regis Center, to pursue the program. Obviously, the
Center is not an agent of the petitioner; and that the petitioner is not the employer of the private
private respondents were never illegally dismissed by respondents. The funds of petitioner are different and
the petitioner, so it cannot be liable for their money distinct from the Cristo Regis Center. Each entity has its
claims. own separate organizational set-up. They operate
independently of each other. The private respondents
The contract between Christian Children’s Fund and the were under the supervision and control of the Cristo
Cristo Regis Center state the following: Regis Center, not the petitioner.

“Christian Children's Fund, Inc. (hereafter called The closure of the project was not due to the
CCF and Cristo Regis Center, FMP (hereafter called petitioner's fault. Indeed, it was because of many
the Project), desire to enter into an agreement complaints received about anomalies in the project.
under which CCF will offer support to the project
as long as it is programmatically and financially Since the petitioner is not the employer of private
capable and as described and limited in this respondents, it logically follows that the Cristo Regis
Agreement. There is no formal legal relationship Center, the entity that hired them, must be their
between CCF and the Protect except the employer.
106 agreement. The project is not an agent of CCF. CORPORATION LAW CASE DIGESTS | 1
CCF and the Project are independent of one Private respondents were not illegally dismissed. The
another. The Project has no authority to, and can closure of the Cristo Regis Center was inevitable. It is a
not and will not enter into any agreement on cogent basis for retrenchment or termination of its
behalf of. CCF or bind CCF not pledge credit in any employees. 
way.”
2.) Cristo Regis Center, as an organization, was created
The respondents argued that the Cristo Regis Center, for a specific charitable objective. As an organization
not being a duly organized corporation listed in the SEC, lawfully created, the doctrine of corporation by
cannot be liable for contracts entered into by it. estoppel will apply. When a third person has entered
into a contract with an association which represented
ISSUE(S): 1.) Whether or not the petitioner Christian itself to be a corporation, the association will be
Children's Fund is the real employer of the private estopped from denying its corporate capacity in a suit
respondents, and not the Cristo Regis Center, an against it by such third person. It cannot allege lack of
organization that is not incorporated. NO capacity to be sued to evade responsibility on a
contract it had entered into and by virtue of which it
2.) Can the Cristo Regis Center be held liable as a received advantages and benefits. 
corporation for contracts entered by it? YES
III. CORPORATION BY PRESCRIPTION
RULING: 1.) A close scrutiny of this contract shows that
the petitioner financially supports the charitable CORPORATION BY PRESCRIPTION: or one which has
program undertaken by the Cristo Regis Center; there is
exercised corporate powers for an indefinite period
no formal legal relationship between petitioner and the
Cristo Regis Center (Project); the Cristo Regis Center is without interference on the part of the sovereign power
not an agent of the petitioner; the petitioner and the and which by fiction of law is given the status of a
Cristo Regis Center (Project) are independent of one corporation.
another; and the Cristo Regis Center (Project) has no
authority to, and cannot and will not enter into any NOTE: Naulit na ang cases. Pero wala gyud namention
agreement on behalf of the petitioner or bind it or sa cases ang Corporation by Prescription. L L L
pledge credit in any way.
1.) PIONEER INSURANCE VS CA (Refer to DE FACTO
CORPORATION TOPIC)
 2.) CHRISTIAN CHILDREN’S FUND VS NLRC (Refer to documents on the alleged shipyard and plant visits in
Corporation by Estoppel case# 2) Cavite Naval Base. PMI reiterated, among others, that
the employment of Galvan is void because it did not
3.) PIONEER INSURANCE VS CA (Refer to DE FACTO comply with its by-laws. Apparently, the by-laws
CORPORATION TOPIC) require that an employment contract must be signed
by the Chairman of the Board of PMI. PMI asserts that
ADOPTION OF BY-LAWS
Galvan’s employment contract was not signed by the
1. [G.R. No. 121466. August 15, 1997] Chairman of the Board.

A decision was subsequently rendered by the

PMI COLLEGES, petitioner, vs. THE NATIONAL LABOR
RELATIONS COMMISSION and ALEJANDRO GALVAN, Labor Arbiter on December 7, 1994 finding for the
respondents. private respondent. On appeal, the NLRC affirmed the
same in toto in its decision of August 4, 1995.
FACTS
ISSUE
On July 7, 1991, petitioner, an educational
Whether or not Galvan’s employment contract
institution offering courses on basic seamans training
and other marine-related courses, hired private is void.
respondent as contractual instructor with an agreement
RULING
that the latter shall be paid at an hourly rate of P30.00
to P50.00, depending on the description of load subjects NO.
and on the schedule for teaching the same. Pursuant to
this engagement, private respondent then organized Neither can we concede that such contract
classes in marine engineering.
would be invalid just because the signatory thereon was
not the Chairman of the Board which allegedly violated
Initially, private respondent and other
instructors were compensated for services rendered petitioner’s by-laws. Since by-laws operate merely as
during the first three periods of the abovementioned internal rules among the stockholders, they cannot
contract. However, for reasons unknown to private affect or prejudice third persons who deal with the
107 respondent, he stopped receiving payment for the CORPORATION
corporation, unless LAW CASE DIGESTS
they have knowledge |1
of the same.
succeeding rendition of services. Repeated demands No proof appears on record that private respondent
having likewise failed, private respondent was soon
ever knew anything about the provisions of said by-
constrained to file a complaint before the National
laws. In fact, petitioner itself merely asserts the same
Capital Region Arbitration Branch on September 14,
1993 seeking payment for salaries earned from the without even bothering to attach a copy or excerpt
following: (1) basic seaman course Classes 41 and 42 for thereof to show that there is such a provision.
the period covering October 1991 to September 1992;
(2) shipyard and plant visits and on-the-job training of
Classes 41 and 42 for the period covering October 1991
to September 1992 on board M/V Sweet Glory vessel; F. CORPORATE GENERAL POWERS
and (3) as Acting Director of Seaman Training Course for
1. GENERAL POWERS: THEORY OF GENERAL CAPACITY
3-1/2 months.

Private respondents claims, as expected, were

1. GR No. 194964, January 11, 2016
resisted by petitioner. It alleged that classes in the University of Mindanao (Petitioner) v Bangko Sentral
courses offered which complainant claimed to have ng Pilipinas et al. (Respondents)
remained unpaid were not held or conducted in the Second Division
school premises of PMI Colleges. Furthermore, the Ponente: Leonen, J.
claims, according to petitioner, were all exaggerated
Nature of Action: An action for the nullification and
and that, at any rate, private respondent abandoned his
cancellation of mortgage on the ground that the person
work at the time he should have commenced the same.
who entered into contract has no authority to execute
PMI manifested that Mr. Tomas G. Cloma, Jr., a such contract.
member of the petitioners Board of Trustees wrote a
FACTS:
letter to the Chairman of the Board on May 23, 1994,
clarifying the case of private respondent and stating Guillermo B. Torres and Dolores P. Torres
therein, inter alia, that under PMI’s by-laws only the incorporated and operated two (2) thrift banks: (1) First
Chairman is authorized to sign any contract and that Iligan Savings & Loan Association, Inc. (FISLAI); and (2)
private respondent, in any event, failed to submit Davao Savings and Loan Association, Inc. (DSLAI).
 Guillermo B. Torres chaired both thrift banks. He acted Mindanao is estopped from denying Saturnino
as FISLAI's President, while his wife, Dolores P. Torres, Petalcorin's authority.
acted as DSLAI's President and FISLAI's Treasurer. Upon
ISSUE:
Guillermo B. Torres' request, Bangko Sentral ng Pilipinas
issued a P1.9 million standby emergency credit to Whether petitionerUniversity of Mindanao is
FISLAI. bound by the real estate mortgage contracts executed
On May 25, 1982, University of Mindanao's Vice by SaturninoPetalcorin.
President for Finance, Saturnino Petalcorin, executed a RULING:
deed of real estate mortgage over University of
Mindanao's property in Cagayan de Oro City in favor of No. Acts of an officer that are not authorized by
BangkoSentral ng Pilipinas. "The mortgage served as the board of directors/trustees do not bind the
security for FISLAI's PI.9 Million loan" It was allegedly corporation unless the corporation ratifies the acts or
executed on University of Mindanao's behalf. As proof holds the officer out as a person with authority to
of his authority to execute a real estate mortgage for transact on its behalf.
University of Mindanao, Saturnino Petalcorin showed a
Petitioner argues that it did not authorize
Secretary's Certificate signed by University of
SaturninoPetalcorin to mortgage its properties on its
Mindanao's Corporate Secretary, Aurora de Leon. The
behalf. There was no board resolution to that effect.
Secretary’s certificate states among others the
Thus, the mortgages executed by SaturninoPetalcorin
authorizing of the chairman to appoint Satunino
were unenforceable. The mortgage contracts executed
Pactolerin to represent the University of Mindanao to
in favor of respondent do not bind petitioner. They
transact, transfer, convey, lease, mortgage, or
were executed without authority from petitioner. Being
otherwise hypothecate the subject properties.
a juridical person, petitioner cannot conduct its
Saturnino Petalcorin executed another deed of real
business, make decisions, or act in any manner without
estate mortgage, allegedly on behalf of University of
action from its Board of Trustees. The Board of Trustees
Mindanao, over its two properties in Iligan City. This
must act as a body in order to exercise corporate
mortgage served as additional security for FISLAI's
powers. Individual trustees are not clothed with
108 loans. FISLAI and DSLAI eventually merged with DSLAI as CORPORATION LAW CASE DIGESTS | 1
corporate powers just by being a trustee. Hence, the
the surviving corporation in an effort to rehabilitate the
individual trustee cannot bind the corporation by
thrift banks due to the heavy withdrawals of depositors.
himself or herself. The corporation may, however,
DSLAI later became known as Mindanao Savings and
delegate through a board resolution its corporate
Loan Association, Inc. (MSLAI). MSLAI failed to recover
powers or functions to a representative, subject to
from its losses. Bangko Sentral ng Pilipinas later on
limitations under the law and the corporation's articles
foreclosed the mortgaged properties. University of
of incorporation. The relationship between a
Mindanao filed two Complaints for nullification and
corporation and its representatives is governed by the
cancellation of mortgage. One Complaint was filed
general principles of agency. Article 1317 of the Civil
before the Regional Trial Court of Cagayan de Oro City,
Code provides that there must be authority from the
and the other Complaint was filed before the Regional
principal before anyone can act in his or her name:
Trial Court of Iligan City. University of Mindanao alleged
that it did not obtain any loan from Bangko Sentral ng ART. 1317. No one may contract in the name of
Pilipinas and that Aurora De Leon’s certification was another without being authorized by the latter,
anomalous. That it never authorized Saturnino or unless he has by law a right to represent him.
Petalcorin to execute real estate mortgage contracts
involving its properties to secure FISLAI's debts and it Hence, without delegation by the board of
never ratified the execution of the mortgage contracts. directors or trustees, acts of a person - including those
The Regional Trial Courts ruled in favor of University of of the corporation's directors, trustees, shareholders, or
Mindanao. The Court of Appeals however ruled that officers—executed on behalf of the corporation are
"although BSP failed to prove that the UM Board of generally not binding on the corporation. The
Trustees actually passed a Board Resolution authorizing unenforceable status of contracts entered into by an
Petalcorin to mortgage the subject real unauthorized person on behalf of another is based on
properties, Aurora de Leon's Secretary's Certificate" the basic principle that contracts must be consented to
clothed Petalcorin with apparent and ostensible by both parties. There is no contract without meeting of
authority to execute the mortgage deed on its the minds as to the subject matter and cause of the
behalf. Bangko Sentral ng Pilipinas merely relied in good obligations created under the contract. Consent of a
faith on the Secretary's Certificate. University of person cannot be presumed from representations of
 another, especially if obligations will be incurred as a The CA Ruling
result. Thus, authority is required to make actions made
on his or her behalf binding on a person. Contracts The CA affirmed with modification the RTC
decision. According to the appellate court, the RTC
entered into by persons without authority from the
corporation shall generally be considered ultra vires and correctly held that MWAI was guilty of an ultra
vires act.  The CA noted that neither MWAI's Articles of
unenforceable against the corporation.
Incorporation nor its By-Laws  contained any provision
that expressly and/or impliedly vested power or
authority upon its Board to recommend the imposition
2. MAGALLANES WATERCRAFT ASSOCIATION, INC., AS of disciplinary sanctions on its delinquent officers
REPRESENTED BY ITS BOARD OF TRUSTEES, NAMELY: and/or members.
EDILBERTO M. BAJAO, GERARDO O. PLAZA, ISABELITA
MULIG, EDNA ABEJAY, MARCELO DONAN, NENITA O. The CA explained that the suspension of their
VARQUEZ, MERLYN ALVAREZ, EDNA EXCLAMADOR, berthing privileges resulted in the failure of the
AND CESAR MONSON, Petitioner, v. MARGARITO C. respondents to operate their bancas—contrary to the
AUGUIS AND DIOSCORO C. BASNIG, Respondents. express reminder of the MARINA. Hence, the CA
concluded that MWAI acted beyond the scope of its
G.R. No. 211485, May 30, 2016 powers when it suspended the rights of Auguis and
FACTS Basnig as members of MWAI to berth on the seaport of
Magallanes and operate their bancas.
Magallanes Watercraft Association, Inc. (MWAI)
is a local association of motorized banca owners and The CA concluded that the suspension by
operators ferrying cargoes and passengers from MWAI of respondents' rights as members for their
Magallanes, Agusan del Norte, to Butuan City and back. failure to settle membership dues was an ultra
Respondents Margarito C. Auguis (Auguis) and Dioscoro vires act as MWAFs articles of incorporation and by-
C. Basnig (Basnig) were members and officers of MWAI - laws were bereft of any provision that expressly and
vice-president and secretary, respectively. impliedly vested power or authority upon its Board to
recommend the imposition of disciplinary actions on
109 CORPORATION
its delinquent officers LAW CASE DIGESTS | 1
and/or members.
On December 5, 2003, the Board of Trustees
(Board) of MWAI passed Resolution No. 1, Series of Hence, this petition.
2003, and thereafter issued Memorandum No. 001
suspending the rights and privileges of Auguis and ISSUE
Basnig as members of the association for thirty (30)
WON the suspension by MWAI of respondents' rights as
days for their refusal to pay their membership dues and
berthing fees because of their pending oral complaint members for their failure to settle membership dues
was an ultra vires act
and demand for financial audit of the association funds.
Auguis had an accumulated unpaid obligation of RULING
P4,059.00 while Basnig had P7,552.00.
NO.
In spite of the suspension of their privileges as
Under Section 3(a) and Section 3(c) Article V of
members, Auguis and Basnig still failed to settle their
MWAI's By-Laws, its members are bound "[t]o obey and
obligations with MWAI. For said reason, the latter
comply with the by-laws, rules and regulations that may
issued Memorandum No. 002, Series of 2004, dated
be promulgated by the association from time to time"
January 8, 2004, suspending their rights and privileges
and "[t]o pay membership dues and other assessments
for another thirty (30) days.
of the association." Thus, the respondents were
obligated to pay the membership dues of which they
On February 6, 2004 respondents filed an action
were delinquent. MWAI could not be faulted in
for damages and attorney's fees with a prayer for the
suspending the rights and privileges of its delinquent
issuance of a writ of preliminary injunction before the
members.
RTC. In its January 11, 2007 decision, the trial court
ordered Auguis and Basnig to pay their unpaid MWAI can properly impose sanctions on Auguis
accounts. It, nonetheless, required MWAI to pay them and Basnig for being delinquent members considering
actual damages and attorney's fees. that the payment of membership dues enables MWAI
to discharge its duties and functions enumerated under
Aggrieved, MWAI appealed before the CA.  its charter. Moreover, respondents were obligated by
 the by-laws of the association to pay said dues. The By-Laws only set membership dues at P1.00 per
suspension of their rights and privileges is not an ultra month; (2) partially distributing the lands donated by
vires act as it is reasonably necessary or proper in Dakudao to some officers of ALRAI and to some non-
order to further the interest and welfare of MWAI. members in violation of the Deeds of Donation; (3)
Also, the imposition of the temporary ban on the use of illegally expelling them as members of ALRAI without
MWAI's berthing facilities until Auguis and Basnig have due process; and (4) being unable to show the books of
paid their outstanding obligations was a reasonable accounts of ALRAI. They also alleged that Loy (who
measure that the former could undertake to ensure the bought one of the donated lots from Alcantara) was a
prompt payment of its membership dues. 1 buyer in bad faith, having been aware of the status of
the land when she bought it.

Thus, respondents prayed for: (1) the restoration of

3. AGDAO LANDLESS RESIDENTS INC. VS MARAMION their membership to ALRAI; (2) petitioners to stop
FACTS selling the donated lands and to annul the titles
transferred to Javonillo, Armentano, Dela Cruz,
Dakudao & Sons, Inc. (Dakudao) executed six Deeds of Alcantara and Loy; (3) the production of the accounting
Donation in favor of ALRAI covering 46 titled lots books of ALRAI and receipts of payments from ALRAI's
(donated lots). One Deed of Donation prohibits ALRAI, members; (4) the accounting of the fees paid by ALRAI's
as donee, from partitioning or distributing individual members; and (5) damages.
certificates of title of the donated lots to its members,
within a period of five years from execution, unless a The Ruling of the RTC
written authority is secured from Dakudao. A violation The RTC ruled in favor of the respondents.  It
of the prohibition will render the donation void, and found respondents to be  bona fidemembers of
title to and possession of the donated lot will revert to ALRAI. Being bona fide  members, they are entitled to
Dakudao. The other five Deeds of Donation do not notices of meetings held for the purpose of suspending
provide for the five-year restriction. or expelling them from ALRAI. The court a quo however
found that respondents were expelled without due
110 In the board of directors and stockholders meetings CORPORATION LAW CASE
process. It also annulled all transfers of theDIGESTS
donated|lots
1
held on January 5, 2000 and January 9, 2000, because these violated the five-year prohibition under
respectively, members of ALRAI resolved to directly the Deeds of Donation. It also found Loy a purchaser in
transfer 10 of the donated lots to individual members bad faith.
and non members of ALRAI. Transfer Certificate of Title
(TCT) Nos. T-62124 (now T-322968), T-297811 (now TCT The Ruling of the Court of Appeals :
No. T-322966), T-297813 (now TCT No. T-322967) and T- AFFIRMED with MODIFICATION.
62126 (now TCT No. T-322969) were transferred to
Romeo Dela Cruz (Dela Cruz). TCT Nos. T-41374 (now The following Transfer Certificates of Title are
TCT No. T-322963) and T-41361 (now TCT No. T-322962) declared VALID:
were transferred to petitioner Javonillo, the president
of ALRAI. TCT Nos. T-41365 (now TCT No. T-322964) and 1. TCT Nos. T-322966, T-322967, T-322968 and T-
T-41370 (now TCT No. T-322964) were transferred to 322969 in the name of petitioner Romeo C.
petitioner Armentano, the secretary of ALRAI. TCT Nos. DelaCruz; and
T-41367 (now TCT No. T-322971) and T-41366 were 2. TCT No. T-338403 in the name of petitioner Lily
transferred to petitioner Alcantara, the widow of the Loy.
former legal counsel of ALRAI. The donated lot covered
by TCT No. T-41366 (replaced by TCT No. T-322970) was The following Transfer Certificates of Title are declared
sold to Lily Loy (Loy) and now covered by TCT No. T- VOID:
338403.
1. TCT Nos. T-322963 and T-322962 in the name of
Respondents filed a Complaint against petitioners. Petitioner Armando Javonillo;
Respondents alleged that petitioners expelled them as
2. TCT Nos. T-322964 and T-322965 in the name of
members of ALRAI, and that petitioners are abusing
petitioner Ma. Acelita Armentano; and
their powers as officers. Respondents further alleged
3. TCT No. T-322971 in the name of petitioner
that petitioners were engaged in the following
Asuncion A. Alcantara.
anomalous and illegal acts: (1) requiring ALRAI's
members to pay exorbitant arrear fees when ALRAI's
ISSUE
 Whether OR NOT the transfers of the donated lots are The Corporation Code therefore tells us that the
valid. power of a corporation to validly grant or convey any of
its real or personal properties is circumscribed by its
RULING primary purpose. It is therefore important to determine
irtualLawlibraryThe following Transfer Certificates of whether the grant or conveyance is pursuant to a
Title are VOID:ChanRoblesVirtualawlibrary legitimate corporate purpose, or is at least reasonable
and necessary to further its purpose.
(1) TCT Nos. T-322962 and T-322963 in
the name of Armando Javonillo; Based on the records of this case, the SC find
(2) TCT Nos. T-322964 and T-322965 in that the transfers of the corporate properties to
the name of Ma. Acelita Armentano; Javonillo, Armentano, Dela Cruz, Alcantara and Loy are
(3) TCT Nos. T-322966, T-322967, T- bereft of any legitimate corporate purpose, nor were
322968, and T-322969 in the name of they shown to be reasonably necessary to further
Romeo Dela Cruz; ALRAI's purposes. This is principally because, as
(4) TCT No. T-338403 in the name of Lily respondents argue, petitioners "personally benefitted
Loy; and themselves by allocating among themselves vast track
(5) TCT No. T-322971 in the name of of lands at the dire expense of the landless general
Asuncion Alcantara. membership of the Association."

One of the primary purposes of ALRAI is the 4. BANK OF COMMERCEvs.RADIO PHILIPPINES

giving of assistance in uplifting and promoting better NETWORK, INC., INTERCONTINENTAL BROADCASTING
living conditions to all members in particular and the CORPORATION, and BANAHA W BROADCASTING
public in general. One of its objectives includes "to uplift CORPORATION, THRU BOARD OF ADMINISTRATOR,
and promote better living condition, education, health and SHERIFF BIENVENIDO S. REYES, JR., Sheriff,
and general welfare of all members in particular and the Regional Trial Court of Quezon City, Branch 98
public in general by providing its members humble [G.R. No. 195615April 21, 2014]
111 CORPORATION LAW CASE DIGESTS | 1
shelter and decent housing."Respondents maintain that
it is pursuant to this purpose and objective that the
properties subject of this case were donated to ALRAI. FACTS:
Section 36, paragraphs 7 and 11 of the
In late 2001 the Traders Royal Bank (TRB)
Corporation Code provide: proposed to sell to petitioner Bank of Commerce for
₱10.4 billion its banking business consisting of specified
assets and liabilities. Bank of Commerce agreed subject
Sec. 36. Corporate powers and capacity. - Every to prior BSP's approval of their Purchase and
corporation incorporated under this Code has the Assumption (P & A) Agreement. On November 8, 2001
power and capacity: the BSP approved that agreement subject to the
condition that Bank of Commerce and TRB would set up
xxx an escrow fund of PSO million with another bank to
cover TRB liabilities for contingent claims that may
7. To purchase, receive, take or grant, subsequently be adjudged against it, which liabilities
hold, convey, sell, lease, pledge, mortgage and were excluded from the purchase.
otherwise deal with such real and personal property,
including securities and bonds of other corporations, as To comply with the BSP mandate, on December
6, 2001 TRB placed ₱50 million in escrow with
the transaction of the lawful business of the
Metrobank to answer for those claims and liabilities
corporation may reasonably and necessarily
that were excluded from the P & A Agreement and
require, subject to the limitations prescribed by law and remained with TRB. Accordingly, the BSP finally
the Constitution. approved such agreement on July 3, 2002.

xxx On October 10, 2002, acting in G.R. 138510, TRB

v. RPN Inc., this Court ordered TRB to pay RPN actual
11. To exercise such other powers as may be damages of ₱10 million plus 12% legal interest and
essential or necessary to carry out its purpose or some amounts. Rather than pursue a levy in execution
purposes as stated in the articles of incorporation. of the corresponding amounts on escrow with
Metrobank, RPN filed a Supplemental Motion for
Execution where they described TRB as "now Bank of
 Commerce" based on the assumption that TRB had been existing corporation, which retains its identity and
merged into Bancommerce. takes over the rights, privileges, franchises,
properties, claims, liabilities and obligations of the
Bancommerce filed its Special Appearance with absorbed corporation(s). The absorbing corporation
Opposition to the same questioning the jurisdiction of continues its existence while the life or lives of the
the RTC over Bancommerce and denying that there was other corporation(s) is or are terminated.
a merger between TRB and Bancommerce. The RTC
issued an Order granting and issuing the writ of ▪ Indubitably, it is clear that no merger took place
execution to cover any and all assets of TRB, including between Bancommerce and TRB as the
those subject of the merger/consolidation in the guise of requirements and procedures for a merger were
a Purchase and Sale Agreement with Bank of absent. A merger does not become effective upon
Commerce, and/or against the Escrow Fund established the mere agreement of the constituent
by TRB and Bank of Commerce with the Metrobank. corporations. All the requirements specified in the
law must be complied with in order for merger to
Bancommerce filed a petition for certiorari with take effect. Section 79 of the Corporation Code
the CA assailing the RTC’s Order, but was denied. The further provides that the merger shall be effective
CA pointed out that the Decision of the RTC was clear in only upon the issuance by the SEC of a certificate of
that Bancommerce was not being made to answer for merger.
the liabilities of TRB, but rather the assets or properties
of TRB under its possession and custody. In the same ▪ Here, Bancommerce and TRB remained separate
Decision, the CA modified the Decision of the RTC by corporations with distinct corporate personalities.
deleting the phrase that the P & A Agreement is a farce What happened is that TRB sold and Bancommerce
or "a mere tool to effectuate a merger and/or purchased identified recorded assets of TRB in
consolidation between TRB and BANCOM.” consideration of Bancommerce’s assumption of
identified recorded liabilities of TRB including
RPN then filed with the RTC a motion to cause booked contingent accounts. There is no law that
the issuance of an alias writ of execution against prohibits this kind of transaction especially when it
Bancommerce based on the CA Decision. The RTC is done openly and with appropriate government
granted the motion on February 19, 2010 on the approval. No merger or consolidation took place as
premise that the CA Decision allowed it to execute on the records do not show any plan or articles of
the assets that Bancommerce acquired from TRB under merger or consolidation. More importantly, the SEC
112 their P & A Agreement. CORPORATION
did not issue LAW CASE
any certificate of DIGESTS
merger| 1or
consolidation.
Bancommerce sought reconsideration of the
RTC Order considering that the December 2009 CA ▪ In his book, Dean Cesar Villanueva explained that
Decision actually declared that no merger existed under the Corporation Code, "a de facto merger can
between TRB and Bancommerce. But, since the RTC had be pursued by one corporation acquiring all or
already issued the alias writ, Bancommerce filed a substantially all of the properties of another
motion to quash the same, followed by supplemental corporation in exchange of shares of stock of the
Motion. acquiring corporation. The acquiring corporation
would end up with the business enterprise of the
The RTC then issued the assailed Order denying target corporation; whereas, the target corporation
Bancommerce pleas and, among others, directing the would end up with basically its only remaining
release to the Sheriff of Bancommerce’s "garnished assets being the shares of stock of the acquiring
monies and shares of stock or their monetary corporation."
equivalent.” Aggrieved, Bancommerce appealed to the ▪ No de facto merger took place in the present case
CA. However, the CA dismissed the petition outright for simply because the TRB owners did not get in
the supposed failure of Bancommerce to file a motion exchange for the bank’s assets and liabilities an
for reconsideration of the assailed order. equivalent value in Bancommerce shares of stock.
Bancommerce and TRB agreed with BSP approval to
ISSUE: exclude from the sale the TRB’s contingent judicial
liabilities, including those owing to RPN.
W/N TRB and Bancommerce were validly merged.

RULING: NO
5. LIGAYA ESGUERRA, ET. AL. v. HOLCIM PHILIPPINES,
(1) INC.
▪ Merger is a re-organization of two or more
corporations that results in their consolidating into G.R. No. 182571, September 2, 2013, REYES, J.
a single corporation, which is one of the constituent
corporations, one disappearing or dissolving and the FACTS:
other surviving. To put it another way, merger is the
absorption of one or more corporations by another
 Respondent Esguerra filed on December 12, Certification of Non Forum Shopping signed by the
1989 with the RTC, Malolos, Bulacan, an action to annul authorized representative. To be sure, HOLCIM, in its
the Free Patent in the name of de Guzman. Esguerra Reply filed in the CA, attached another Secretary’s
claimed that he was the owner of the subject land with Certificate, designating and confirming O’Callaghan’s
an approximate area of 47,000 square meters. Esguerra power to authorize Sycip Salazar Hernandez &
learned that the said parcel of land was being offered Gatmaitan and/or any of its lawyers to file for and on
for sale by de Guzman to Hi-Cement Corporation (now behalf of HOLCIM, the pertinent civil and/or criminal
HOLCIM Philippines, Inc.). He later amended his actions pending before the RTC.
complaint to impleaded Hi-Cement as a co-defendant The foregoing convinces the Court that the CA
since the latter was hauling marble from the subject did not err in admitting HOLCIM’s petition before it.
land. The RTC dismissed Esguerra’s complaint but on HOLCIM attached all the necessary documents for the
appeal, the CA reversed. The Supreme Court in its filing of a petition for certiorari before the CA. Indeed,
Decision dated December 27, 2002 affirmed the CA’s there was no complete failure to attach a Certificate of
decision. After attaining finality, the case was Non-Forum Shopping. In fact, there was such a
remanded to the RTC for execution. certificate. While the board resolution may not have
Now, herein petitioners (heirs of Esguerra), filed been attached, HOLCIM complied just the same when it
an Omnibus Motion with the RTC, manifesting that the attached the Secretary’s Certificate dated July 17, 2006,
Court’s December 27, 2002 decision has yet to be thus proving that O’Callaghan had the authority from
executed. HOLCIM filed a motion for reconsideration the board of directors to appoint the counsel to
alleging that it did not owe any amount of royalty to the represent them. The Court recognizes the compliance
petitioners for the extracted limestone from the subject made by HOLCIM in good faith since after the
land. It also filed a Manifestation and Motion for Ocular petitioners pointed out the said defect, HOLCIM
Inspection to prove that it did not extract limestone submitted the Secretary’s Certificate dated July 17,
from the subject land. Despite all of this, an alias writ of 2006, confirming the earlier Secretary’s Certificate
execution and notices of garnishment on several banks dated June 9, 2006.
against HOLCIM have been issued by the RTC to cover
the payment of royalties to petitioner for the former's 6. G.R. No. 181277, July 03, 2013
extraction of limestone, etc. HOLCIM filed a Petition for
Certiorari with Urgent Applications for Temporary SWEDISH MATCH PHILIPPINES, INC., Petitioner, v. THE
Restraining Order and/or Writ of Preliminary Injunction TREASURER OF THE CITY OF MANILA,Respondent.
with the CA. The CA granted the motion.
113 CORPORATION LAW CASE DIGESTS | 1
ISSUE: THE
On 20 October 2001, Swedish Match Phils. Inc. paid business taxe
Whether or not the CA gravely erred in not
dismissing HOLCIM's petition for certiorari on the The assessed amount was based on Sections 14 and 21 of Ord
ground of lack of Board Resolution authorizing the filing Manila Revenue Code, as amended by Ordinance Nos. 7988 an
of petition.
corresponded to the payment
HELD:
Assenting that it was not liable to pay taxes under Section 21, pe
The general rule is that a corporation can only 2003 to herein respondent claiming a refund of business taxes
exercise its powers and transact its business through its provision.  Petitioner argued that payment under Section 21
board of directors and through its officers and agents payment under
when authorized by a board resolution or its bylaws.
The power of a corporation to sue and be sued is
On 17 October 2003, for the alleged failure of respondent to ac
exercised by the board of directors. The physical acts of
the corporation, like the signing of documents, can be Petition for Refund of Taxes with the RTC of Manila in accordanc
performed only by natural persons duly authorized for Code of 1991. The Petition was docketed
the purpose by corporate bylaws or by a specific act of
the board. Absent the said board resolution, a petition On 14 June 2004, the Regional Trial Court (RTC), Branch 21 of M
may not be given due course. 03-108163 dismissing the Petition for the failure of petitioner t
In the case at bar, HOLCIM attached to its state the authority of Tiarra T. Batilaran-Beleno (the company’s F
Petition for Certiorari before the CA a Secretary’s
Verification and Certification of
Certificate authorizing Mr. Paul M. O’Callaghan
(O’Callaghan), its Chief Operating Officer, to nominate,
designate and appoint the corporation’s authorized In denying petitioner’s Motion for Reconsideration, the RTC
representative in court hearings and conferences and pertained to taxes of a different nature and, thus, the elements o
the signing of court pleadings. It also attached the
Special Power of Attorney dated June 9, 2006, signed by On appeal, the CTA Second Division affirmed the RTC’s dismissa
O’Callaghan, appointing Sycip Salazar Hernandez &
ground that petitioner had failed to state the authority of Ms. Be
Gatmaitan and/or any of its lawyers to represent
HOLCIM; and consequently, the Verification and
 vs.
ISSUE SECURITIES & EXCHANGE COMMISSION

Whether Ms. Beleno was authorized to file the Petition FACTS

for Refund of Taxes with the RTC
Alhambra Cigar and Cigarette Manufacturing Company,
Inc. (hereinafter referred to simply as Alhambra) was
RULING duly incorporated under Philippine laws on January 15,
1912. By its corporate articles it was to exist for fifty
YES. (50) years from incorporation. Its term of existence
expired on January 15, 1962. On that date, it ceased
The power of a corporation to sue and be sued is lodged transacting business, entered into a state of liquidation.
in the board of directors, which exercises its corporate
powers. It necessarily follows that “an individual Thereafter, a new corporation. — Alhambra Industries,
corporate officer cannot solely exercise any corporate Inc. — was formed to carry on the business of
power pertaining to the corporation without authority Alhambra.
from the board of directors.” Thus, physical acts of the
corporation, like the signing of documents, can be On May 1, 1962, Alhambra's stockholders, by resolution
performed only by natural persons duly authorized for named Angel S. Gamboa trustee to take charge of its
the purpose by corporate by-laws or by a specific act of liquidation.
the board of directors.
On June 20, 1963 — within Alhambra's three-year
Consequently, a verification signed without an authority statutory period for liquidation - Republic Act 3531 was
from the board of directors is defective.  However, the enacted into law. It amended Section 18 of the
requirement of verification is simply a condition Corporation Law; it empowered domestic private
affecting the form of the pleading and non-compliance corporations to extend their corporate life beyond the
does not necessarily render the period fixed by the articles of incorporation for a term
pleading fatally defective. The court may in fact order not to exceed fifty years in any one instance. Previous to
the correction of the pleading if verification is lacking or, Republic Act 3531, the maximum non-extendible term
it may act on the pleading although it may not have of such corporations was fifty years.
been verified, where it is made evident that strict
114 compliance with the rules may be dispensed with so CORPORATION LAW CASE DIGESTS | 1
On July 15, 1963, at a special meeting, Alhambra's board
that the ends of justice may be served. of directors resolved to amend paragraph "Fourth" of its
articles of incorporation to extend its corporate life for
an additional fifty years, or a total of 100 years from its
In this case, it is undisputed that the Petition filed with incorporation.
the RTC was accompanied by a Verification and
Certification of Non-Forum Shopping signed by Ms. On October 28, 1963, Alhambra's articles of
Beleno, although without proof of authority from the incorporation as so amended certified correct by its
board. However, this Court finds that the belated president and secretary and a majority of its board of
submission of the Secretary’s Certificate constitutes directors, were filed with respondent Securities and
Exchange Commission (SEC).
substantial compliance with Sections 4 and 5, Rule 7 of
the 1997 Revised Rules on Civil Procedure. On November 18, 1963, SEC, however, returned said
amended articles of incorporation to Alhambra's
A perusal of the Secretary’s Certificate signed by counsel with the ruling that Republic Act 3531 "which
petitioner’s Corporate Secretary Rafael Khan and took effect only on June 20, 1963, cannot be availed of
submitted to the RTC shows that not only did the by the said corporation, for the reason that its term of
corporation authorize Ms. Beleno to execute the existence had already expired when the said law took
effect in short, said law has no retroactive effect."
required Verifications and/or Certifications of Non-
Forum Shopping, but it likewise ratified her act of filing On December 3, 1963, Alhambra's counsel sought
the Petition with the RTC. reconsideration of SEC's ruling aforesaid, refiled the
amended articles of incorporation.

On September 8, 1964, SEC, after a conference hearing,

2. SPECIFIC POWERS: THEORY OF SPECIFIC CAPACITY
issued an order denying the reconsideration sought.

1. G.R. No. L-23606           July 29, 1968 ISSUE: Whether or not a corporation under liquidation
may still amend its articles of incorporation to extend its
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING lifespan.
COMPANY, INC., petitioner, 
 RULING

No.  Alhambra cannot avail of the new law because it The way the whole case shapes up then, the only
has already expired at the time of its passage. possible drawbacks of Alhambra might be that, instead
of the new corporation (Alhambra Industries, Inc.) being
written off, the old one (Alhambra Cigar & Cigarette
Manufacturing Company, Inc.) has to be wound up; and
For implicit in Section 77 heretofore quoted is that the that the old corporate name cannot be retained fully in
privilege given to prolong  corporate life under the its exact form.17 What is important though is that the
amendment must be exercised before the expiry of the word Alhambra, the name that counts [it has goodwill],
term fixed in the articles of incorporation. remains.

As we look in retrospect at the facts, we find these: FOR THE REASONS GIVEN, the ruling of the Securities
From July 15 to October 28, 1963, when Alhambra and Exchange Commission of November 18, 1963, and
made its attempt to extend its corporate existence, its its order of September 8, 1964, both here under review,
original term of fifty years had already expired (January are hereby affirmed.
15, 1962); it was in the midst of the three-year grace
period statutorily fixed in Section 77 of the Corporation
Law, thus: .

SEC. 77. Every corporation whose charter

expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in
any other manner, shall nevertheless be
continued as a body corporate for three years
after the time when it would have been so
dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling
115 CORPORATION LAW CASE DIGESTS | 1
it gradually to settle and close its affairs, to
dispose of and convey its property and to divide
its capital stock, but not for the purpose of
continuing the business for which it was
established.

When a corporation is liquidating pursuant to the

statutory period of three years to liquidate, it is only
allowed to continue for the purpose of final closure of
its business and no other purposes. In fact, within that
period, the corporation is enjoined from “continuing
the business for which it was established”. Hence,
Alhambra’s board cannot validly amend its articles of
incorporation to extend its lifespan.

Alhambra’s stance does not induce assent. Expansive

construction is possible only when there is something to
expand. At the time of the passage of Republic Act
3531, Alhambra’s corporate life had already expired. It
had overstepped the limits of its limited existence. No
life there is to prolong.

Besides, a new corporation — Alhambra Industries, Inc.,

with but slight change in stockholdings 15 — has already
been established. Its purpose is to carry on, and it
actually does carry on,16 the business of the dissolved
entity. The beneficial-effects argument is off the mark.